The Biggest Headwind for the Housing Market is not COVID-19
June 23, 2020
The U.S. housing market continues to perform well, despite the coronavirus outbreak. After a brief slowdown in March amid the larger economic shutdown, sales of newly built homes surged in May, jumping nearly 13% annually. New homes sold at the strongest pace for the month of May since 2007.
Sales indicate that demand is strong, whether that is due to city dwellers looking to flee to the safety of the suburbs, or investors looking for a stable investment, Americans want to buy homes. So much so, that homebuilders are struggling to keep up with demand.
Despite strong sales, the number of new single-family homes that started construction last month fell 18% annually for the month. The number of building permits, which gauge future construction, was down by nearly 10%. The biggest jump in sales for the month came from homes that were not yet started.
The housing market has shown that it has legs, but if homebuilders, hindered by high costs and low availability of labor, cannot keep up, then availability and affordability will continue to limit the market’s potential.