Homebuilding bounces back in June amid a dire shortage of properties on the market.
U.S. home sales hit a snag in June, as a dearth of available property pushed prices to new records. However, signs of life in the homebuilding sector allayed concerns of a more protracted drop in the months to come.
The National Association of Realtors (NAR) reported last week that home resales fell 1.8% in June to a seasonally adjusted annual rate of 5.52 million units. Analysts in a Reuters poll called for a 1% decline. Compared to June 2016, sales were up 0.6%.
A pervasive shortage of residential properties was the main culprit behind the monthly decline. High demand and not enough homes pushed prices to record levels in June, with the NAR reporting a 6.5% year-over-year increase. That was the 64th consecutive month of annual price increases.
New home sales, a more volatile segment of the housing market, rose for a second consecutive month in June. Sales were up 0.8% to a seasonally adjusted annual rate of 610,000 units, data from the Commerce Department showed. New single-family home sales in the West climbed 12.5% to a 180,000-unit rate, the highest in ten years. Sales were up in the Midwest, unchanged in the Northeast and down 6.1% in the South.
The biggest story in June was the sharp rebound in residential housing starts, which rose for the first time in four months. Groundbreaking jumped 8.3% to a seasonally adjusted annual rate of 1.22 million units, the highest since February. Single-family starts, which account for the largest share of the housing market, rose 6.3%.
Building permits – a proxy for future residential projects – jumped 7.4% to a 1.25 million-unit pace. That was the highest since March.
Higher construction activity generally leads to more listings, but analysts warn that the overall market remains constrained by rising lumber costs and an acute shortage of land and labor. These factors contributed to a sharp decline in construction activity during the fourth and first quarter.
Fresh tariffs on Canadian softwood lumber are expected to add about $1,200 to the price of an average single-family home, according to the National Association of Home Builders (NAHB). The mere anticipation of tariffs pushed lumber prices higher by about 22% through the first five months of the year.
NAHB’s monthly survey of homebuilder confidence declined more than expected in July on concerns of rising material prices. The housing market index declined two points in July to a level of 64 from a downwardly revised June reading of 66. At the same time, builders said current sales conditions remain robust, indicating strong demand in the sector.
Long-term mortgage rates held below 4% for the month of June before rising above that threshold through mid-July. The average commitment rate on a 30-year fixed-rate mortgage average 3.92% in the week ended July 27, according to Freddie Mac. Just two weeks earlier, it reached 4.03%, which was the highest since May.
 National Association of Realtors (July 24, 2017). Existing-Home Sales Retreat 1.8 Percent in June.
 Reuters (July 26, 2017). “US new home sales rise for second straight month.” CNBC.
 Reuters (July 19, 2017). “US housing starts total 1.1215M in June, vs. 1.16M expected.” CNBC.
 Diana Olick (April 25, 2017). “Trump’s Canadian lumber tariff could cost US homebuyers about $1,200 per house.” CNBC.