The decline, rebound and growth of home construction in 2020 has been dramatic. After a significant decline in the spring, home building has seen notable gains supported by historically low interest rates, favorable demographics, an evolving geography of housing demand, and a significant inventory deficit.
New home sales have led the way: Sales of new single-family homes are up almost 17% on a year-to-date basis, with a growing number of sales contracts attributable to homes not yet under construction. In fact, such sales are up 47% as of September. A recent NAHB analysis found that the current gap between new home sales and for-sale single-family starts was at historic levels.
The housing market is already beginning to adjust to this notable gap between sales and construction, as the growth rate for new home sales saw a 3.5% decline from August to September. But to be clear, the pace of sales in September (959,000 annual rate) is still strong, with a 32% year-over-year increase. Combined with the low level of inventory at a 3.6-month supply, the September data indicate growth opportunities for home building.
For these reasons, builder confidence in October reached a new, all-time high. The rising optimism is a reflection of the gains in September’s home construction data, which show single-family starts up 6.2% on a year-to-date basis and permits up almost 10%. In contrast, multifamily building is weakening, with 5-plus unit apartment permits down 8.4% thus far in 2020.
–NAHB Chief Economist Robert Dietz