Home Sales, Construction Lagging Behind Economic Recovery

August 14, 2018

Despite an overall robust economic recovery, housing is still a step behind. “The disconnect between a strengthening economy and struggling housing sector has been a common theme throughout this expansion and, unfortunately, is a theme that is likely to continue,” according to a recent Wells Fargo Securities report.

Through the first half of the year, existing home sales are about 2% off last year’s pace during the same six months. The lack of homes for sale in 2018 is one of the main reasons for this difference compared to 2017. Existing home sale inventory increased slightly in June, but had declined for the previous 36 months on a year-over-year basis.

Meanwhile, new home sales have been hurt by rising lumber costs as well as other building materials price increases. According to the latest IHS Markit PEG Engineering and Construction Cost Index, the materials/equipment subindex for current pricing showed rising prices for the 20th consecutive month in July. This leads to leaner new home sale inventory and, in turn, higher home prices.

According to Wells Fargo, existing home sales and new home construction are expected to rise less than previously predicted, with existing home sales forecasted to drop more than a percent this year. It is expected new home construction will improve later this year, as building material prices start to ease.

-Michael Miller, managing editor

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