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Existing Home Sales Suffer from
Low Inventory

Monday, July 16, 2018

From NAHB Chief Economist Robert Dietz

Despite favorable macroeconomic conditions, the recent pace of existing home sales has been weak. Sales fell 0.4% in May due to a lack of inventory, which declined 2.8% for the month and is 6.1% lower than a year ago. Resale inventory has decreased on a year-over-year basis for 36 straight months. Pending existing-home sales also declined in May and volume is 2.2% lower than a year ago.

June’s labor market report from the Bureau of Labor Statistics revealed an above-forecast jobs gain of 213,000. Though the unemployment rate increased to 4%, this was actually good news because it was due to an increase in the number of people looking for jobs, thus boosting the labor force participation rate to 62.9%. To sustain economic momentum late in the business cycle, additional workers need to come into the labor market. Some acceleration in wage growth, such as the 2.7% year-over-year gain in June, will help in this regard.

Year-to-date, new home sales for 2018 are up almost 9% compared to this time last year. Sales are up across most of the nation – increasing 15% in the Midwest, 11% in the West, and 8% in the South. Only the Northeast recorded a decline (almost 4%). However, residential construction continues to be limited by the availability and costs associated with labor and materials. Nonetheless, builders continue to add workers – 4,800 more jobs in June – in anticipation of expanding construction volume. Still, the gains are not occurring fast enough to raise construction output above recent trends.

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