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Short-Term Ups and Downs for Housing

Recent housing market data have illustrated that while the long-run trend for housing remains one of improvement, there will be bumps along the way.  In particular, availability of building lots and skilled labor, rising building material prices, and big picture economic and policy developments will present month-to-month challenges for home builders and other housing businesses.

The share of first-time home buyers remains lower than the historic average.  For the housing market to return to normal, these buyers need access to credit and stable labor market conditions to afford a home.

Builder confidence has declined slightly in 2013 and one factor holding builder confidence back is a rise in the cost of some building materials.  Since March 2012 builders have seen significant increases in gypsum (18%), softwood lumber (30%) and OSB (68%).

Inventories of newly built homes continue to stand near historic lows at 153,000.  In a normal market, there are about 100,000 ready-to-occupy new homes for sale.  At the current sales pace, the inventory represents only a 4.4 month supply.

Rising rent could further increase demand for new and existing homes sales in the months ahead.  They have increased steadily since June 2012 and have now surpassed the cycle high established in May 2009.