U.S. existing home sales jump in September, housing starts and building permits edge down

U.S. existing home sales jump in September, housing starts and building permits edge down

* Existing home sales rose a sharp 410k (7% m/m) to 6.3m annualized in September retracing 57% of their decline from January-May, reflecting continued strong demand despite the limited supply of existing homes (Chart 1). Median existing home sales prices edged down 1.4% m/m but are still 13% higher than this time last year and just 2.8% below June’s record high of $363,000, while the months supply of existing homes edged down to 2.4 months, well below the average of 3.7 months. The marked improvement in existing home sales should lift purchases of household furnishings and durable household equipment. Despite rising wages, employment, and low mortgage rates, surging home prices have dented housing affordability; a record 66% of respondents to Fannie Mae’s National Housing Survey said it was a bad time to buy a house in September (Chart 2).

* Housing starts and building permits dipped in September, with housing starts falling 25k from a downwardly revised 1.58m to 1.56m annualized, (Chart 3). Single unit housing starts were flat, with the decline in housing starts driven by a 25k decline in starts of 5+ unit structures. Housing starts declined substantially in the Northeast and South, falling 45k and 56k respectively, while starts edged up in the Midwest and South.

* The decline in housing starts reflects material shortages and supply disruptions that are constraining construction, highlighted by the steep declines in housing completions which contracted for the second consecutive month falling 4.6% m/m and 13% yr/yr (Chart 4).

* Building permits fell 130k to 1.59m, underpinned by a steep decline in permits for multifamily units which dropped 18.3% to 550k (Chart 5). The supply of housing will pick up, albeit with a lag: housing units under construction rose 17.1% yr/yr in September to a record 1.43m annualized. The National Association of Home Builders notes: “The number of single-family units in the construction pipeline is 712,000, almost 31% higher than a year ago as more inventory is headed to market”.

* Lumber futures prices have bounced back following their steep decline from record highs, and costs of other materials and labor continue to weigh on home building – the construction price index is up 12.8% yr/yr, while average hourly earnings in the construction industry rose 4.5% yr/yr. Lumber wholesalers and retailers are still working through inventories purchased during the lumber price surge, so that lumber prices facing the construction industry will remain elevated for some time.

Chart 1: Existing Home Sales (SAAR, thousands)

Chart 2: Fannie Mae National Housing Survey- % Respondents Indicating it is a Bad Time to Buy

Chart 3: Housing Starts (SAAR, thousands)

Chart 4: Housing Units Under Construction & Housing Completions

Chart 5: Building Permits (SAAR, thousands)

Mickey Levy, mickey.levy@berenberg-us.com

Mahmoud Abu Ghzalah, mahmoud.abughzalah@berenberg-us.com

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