Sales of New Homes Surge But Leave Gaps Elsewhere

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Sales of newly built homes surged 15 percent but left housing starts and building permits behind.

Sales of newly built homes increased 13 percent annually, but other parts of the housing market dragged, according to CNBC.

In March, sales of newly built homes dragged amid economic lockdowns. In May, they posted the strongest surge since 2007. Builders were stunned by the demand for new homes. Housing starts dragged as builders struggle to meet the increase in demand.

Building permits, a common indicator of future construction, were down around 10 percent.

“Sales of homes not yet under construction are rising given capacity limitations in the building industry,” said Robert Dietz, chief economist at the National Association of Home Builders. “Due to labor and land constraints, homebuilders were already producing too few single-family homes given potential demand. As housing demand has picked up in recent weeks, builders have shifted sales to homes not yet under construction – a 20% year-over-year gain for such sales.”

Homebuilders have increased hiring to match the increase in demand, adding 226,000 employees in May. However, homebuilders are struggling to find skilled workers and are dealing with increased land and material prices.

“The rapid improvement in sales of new homes may also reflect a change in consumer preferences, with buyers showing a newfound penchant for cleaner, never-lived-in homes — although the long-term durability of that trend remains to be seen,” said Matthew Speakman, an economist at Zillow.

“There has been a production deficit in housing,” said Stuart Miller, chairman and former CEO of Lennar. “We are shelter-supply-constrained, and that supply constraint means that all forms of shelter are going to thrive in the current market and probably be sustainable for the next year or two.”

Some are questioning if the surge will last given the current economic conditions.

“The key question for housing is after this sort of pent-up demand gets satiated, will the level of employment and wages reassert itself as the main driver of the market?” said Peter Boockvar, chief investment officer at the Bleakley Advisory Group. “The other dynamic for sure will be the spending behavior of millennials, as they are the key demographic group to watch for the housing market in the years to come.”

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