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House prices will likely continue to fall in the coming months. The S&P CoreLogic Case-Shiller National Home Price Index fell 0.5% in May from a year ago, after a 0.1% decrease in the previous month. But on a month-over-month basis, home prices are rising again. After seasonal adjustment, prices have increased for four consecutive months. Over the next few months, we’re likely to see monthly declines again as the recent uptick in mortgage rates weighs on housing demand.
Residential construction fell sharply in June. Total housing starts fell 8% to 1.434 million annualized units. The monthly decline was broad-based, with both single-family and multi-family construction pulling back during the month. A steep fall in multi-family building permits dragged down total permits, though single-family permits rose slightly, extending their streak of monthly gains to five months.
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Multi-family and single-family construction seem to be on divergent paths. Although apartment demand has picked up so far this year, the rebound hasn’t been strong enough to absorb the units that are already under construction, making developers wary of breaking ground on new projects. By contrast, the improvement in single-family construction this year is a sign that builders are scaling up development in response to both more favorable conditions and a steady stream of buyers giving up on the existing home market, where inventories are slim.
New home sales fell in June, but the broader, positive trend remains intact. Sales fell 2.5% in June to a seasonally adjusted annual rate of 697,000 units — the first decline in four months. New home sales had risen steadily this year after bottoming out last summer. The recent strength in these sales indicates that the higher cost of a new mortgage has discouraged homeowners with low mortgage rates from moving, which has kept the inventory of existing homes near record lows. This has pushed buyers to the new home market, where inventory is at a healthy level of 7.4 months’ worth of sales at the current sales pace.
Existing home sales edged lower in June and further falls are likely. They fell 3.3% to 4.16 million annualized units in June. The low level of sales shows that stretched affordability continues to weigh on demand for existing homes. Mortgage rates have risen from an average of 6.66% in May to 6.78% in June. Meanwhile, the inventory of existing homes on the market has fallen to a record low, and it’s unlikely to improve in coming months, as more homeowners choose to stay put rather than list their homes.
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