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Home Sales, Housing Starts Hit Short-Term Snags

Written by on Tuesday, 23 April 2013 7:00 pm

Home sales slipped in March at a time when a seasonal upswing takes hold and the immediate future of housing starts is clouded with rising material costs, and both a labor and easily developed land shortage.

However, Capital Economics reports there's little concern the housing recovery will falter. The market should work out the kinks in the coming months.

Existing home sales

Existing home sales declined 0.6 percent month-to-month in March, but were up 10.3 percent year over year.

However, sales remain 43 percent higher than the mid-2010 low point and the share of distressed properties fell to 21 percent, the lowest level in the five years Capital has been tracking the distressed properties.

When distressed sales are removed from the mix, existing home sales were up by 4.7 percent month-to-month ending in March and up 23 percent for the year.

Capital Economics also says homes are selling faster than they have in the past two years, taking just 62 days to find a buyer.

Inventories also are creeping up, 1.2 percent in March, following a 1.6 percent month-to-month rise in February.

"Given that tight supply and a lack of choice has actually been a crimp on sales volumes recently, a slightly larger inventory should prove to be a boost to activity levels," Capital reported.

And just in time for the spring buying season.

But don't expect prices to stop rising. The national housing market has only a 4.9 month's supply of homes for sale.  

Housing starts

Housing starts aren't doing much to increase the supply. Capital Economics expects housing starts to fall back next month after jumping 7 percent in March, compared to February.

The jump to more than 1 million annualized housing starts for the year was, however, the first above 1 million figure since 2008, and that puts the year-over-year increase in housing starts at a whopping 47 percent.

Unfortunately much of the increase in housing starts was in the multi-family housing sector. Multi-family housing starts rose more than 31 percent in March, month-to-month, while single-family starts fell 4.8 percent, Capital Economics reported.

The National Association of Home Builders is losing confidence in the single-family sector. The index fell two points to 42 in April. The third consecutive monthly decrease.

Building permits fell by nearly 4 percent in March, pointing to a decline in starts in April.

"Clearly, the homebuilding recovery is running into a few snags. Building material costs are rising, there's a shortage of construction workers and builders are struggling to find easily developed lots," Capital Economics reported.

The snags are not surprising, especially when it comes to the labor supply. When homebuilding crashed, construction workers had to find work elsewhere to put food on the table. Many won't return to construction.

"It will take a while before homebuilders' ability to build more homes catches up with their appetite to do so," Capital added.

However, buyer demand and low inventories in the existing housing market will continue to put more pressure on builders to build more new homes.

"The NAHB confidence index still points to starts topping 1.3 million soon," Capital Economics reported.

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  About the author, Broderick Perkins

Individual news stories are based upon the opinions of the writer and does not reflect the opinion of Realty Times.