In July, new home sales surged more than 12%. That’s notable because new home construction is about half of what it was before the housing bubble popped.
So a 12% rise might not be that many more sales because sales have been so low for years. And the slow pace of new home construction and resulting sales has contributed to what is becoming a U.S. housing shortage.
There are fewer available homes – new or existing – and as demand has increased, so have the prices. Realtors worry that this is distorting the housing market.
While new home sales rose in July, existing homes fell. The National Association of Realtors (NAR) reports completed transactions fell 3.2 percent to a seasonally adjusted annual rate of 5.39 million in July from 5.57 million in June.
For only the second time in the last 21 months, sales are now below what they were a year ago.
Lawrence Yun, NAR chief economist, says more homes would almost certainly have sold if they had been on the market.
“Severely restrained inventory and the tightening grip it’s putting on affordability is the primary culprit for the considerable sales slump throughout much of the country last month,” he said.
In fact, Yun says fewer people are even looking for a house because they aren’t finding many to choose from in their price range. It’s frustrating for many would-be buyers, he says, because mortgage rates are near all-time lows.
Hope for the market probably lies in more new home construction, which does not appear to be responding to the increase in demand. Construction recently has centered more on multi-family dwellings and more expensive luxury homes.
What is needed is entry-level home construction. And as July’s sales figures show, when it is offered, people will buy.