Bad news for buyers: home construction slows

Home construction

The Commerce Department reports new home construction held steady in May, not getting the normal seasonal boost from warmer weather. Housing states were down 0.3% for the month, to an annualized rate of 1.16 million units.

The slowdown in construction is perplexing. Demand for housing has increased, along with prices, at a time when there are fewer homes for sale. The lack of activity by builders is cited as one reason for the declining inventory.

Borrowing costs are also near record lows, making now a good time to build. But a lack of new home construction means there is more competition for existing homes. While that has been beneficial to sellers, it has made it harder for buyers to find the house they want in the price range they can afford.

Builders wary

Some analysts have attributed the slowdown in construction to wariness on the part of builders about the overall state of the economy. While the market has been strong in many parts of the country, there is a belief by some that there is risk in assuming it will stay that way.

There was some encouraging news recently from the National Association of Realtors (NAR), which reported that total U.S. housing inventory at the end of April increased 9.2% to 2.14 million existing homes available for sale. However, that is still 3.6% lower than a year ago.

Unsold inventory is at a 4.7-month supply at the current sales pace, up from 4.4 months in March.

“The temporary relief from mortgage rates currently near three-year lows has helped preserve housing affordability this spring, but there’s growing concern a number of buyers will be unable to find homes at affordable prices if wages don’t rise and price growth doesn’t slow,” said NAR chief economist Lawrence Yun.

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