Home sales fell in April, although the underlying trend continued to show favorable growth fueled by more plentiful jobs and pent-up demand.
Housing activity declined across the board in April, as inventories struggled to keep pace with rising demand and builders grappled with higher material costs and labor shortages.
Home resales fell 2.3% in April to a seasonally adjusted 5.57 million, the National Association of Realtors (NAR) reported last week. That was higher than the 1.1% drop forecast by economists. NAR chief economist Lawrence Yen said a pullback was expected given the strong sales increase in March.
“Demand is easily outstripping supply in most of the country and it’s stymieing many prospective buyers from finding a home to purchase,” Yun said.
First-time buyers are at a greater risk of getting priced out of the market. The labor recovery that has powered the U.S. economy since the recession is creating jobs at a torrid pace, but isn’t necessarily translating into better outcomes for younger buyers. As we’ve talked about before, Millennials own a much smaller share of housing stock than other generations.
In terms of new residential property, sales in April recorded their biggest drop in more than two years. New home sales plunged 11.4% to a seasonally adjusted 569,000 units, the Commerce Department said. That’s down from a revised 642,000-unit pace in March that was the highest since 2007. Analysts forecast a much smaller drop of 1.5%.
Builders have long complained about rising material costs and shortages of lots and labor. Combined, these factors are keeping supplies limited and driving up the value of homes.
New property values are expected to rise after President Donald Trump slapped a 20% import levy on Canadian softwood lumber. The Trump administration has triggered a 90-day countdown to renegotiate the North American Free Trade Agreement (NAFTA), which has governed bilateral trade between the U.S., Canada and Mexico since 1994.
The Commerce Department said there were 268,000 new homes available on the market in April, the highest since July 2009. Still, new housing inventory remains less than half of what it was at the peak of the real estate boom.
Housing starts were also down 2.6% in April, data from the Commerce Department showed. Building permits – a bellwether of future construction plans –slipped 2.5%. This suggests supply shortages are likely to remain the norm for the foreseeable future.
Despite these challenges, builder confidence remains in a firm uptrend. A barometer of homebuilder optimism known as the housing market index rose to 70 in May, the National Association of Home Builders (NAHB) reported. That’s the second-highest level since the market downturn.
Historically low mortgage rates are expected to keep housing demand elevated for the foreseeable future. Rates declined last week to the lowest level of 2017, according to Freddie Mac. The average commitment on a 30-year fixed-rate mortgage was 3.95% in the week ended May 25. Rates were as high as 4.30% in March.