Existing Home Sales Remain Sluggish Amid Limited Inventory, Boosting New Home Construction

Key Takeaways:

• Existing home sales rose 0.2 percent to a seasonally adjusted annualized rate (SAAR) of 4.30 million in May, according to the National Association of REALTORS® (NAR). The non-seasonally adjusted inventory of homes for sale increased 3.8 percent to 1.08 million, its second consecutive monthly gain, but inventories are still down 6.1 percent compared to a year ago. The months’ supply rose one-tenth to 3.0. Compared to a year ago, the median sales price of an existing home declined 3.1 percent, according to the NAR.
• Housing starts jumped 21.7 percent to a SAAR of 1.63 million in May, according to the Census Bureau. Single-family starts rose 18.5 percent to a SAAR of 997,000, the fastest pace since June 2022. Multifamily starts grew even more quickly, rising 27.1 percent to a SAAR of 634,000, the highest pace since 1986. Permits, which are generally less volatile than the starts series and are more indicative of broader trends, also rose but were considerably more modest than the starts figures. On the single-family side, permits were up 4.8 percent to a SAAR of 897,000, while multifamily permits rose 5.9 percent to a SAAR of 594,000.
• The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index rose 5 points to 55 in June, its first rating above the neutral threshold of 50 since July 2022. The index has now risen each of the past 6 months. The index for single-family sales in the present rose 5 points to 61, and the index for sales in the next six months was up 6 points to 62. The index for foot traffic of prospective buyers increased 4 points to 37.

Forecast Impact:

Existing home sales were essentially flat in May, largely in line with our forecast. We continue to expect that existing home sales will decline modestly through the rest of the year amid a broader economic slowdown, ongoing affordability constraints, and limited inventories of homes available for sale. The ongoing lack of existing home inventory continues to provide a boost to the new home market, though, as May represented the largest single-month jump in single-family starts in percentage terms since June 2020. While some of the reported strength in starts may be statistical noise from a volatile series, single-family permits have steadily trended upward since January, indicating new home construction is indeed in recovery from its winter trough. We will be revising our single-family starts forecast upward based on this trend. Multifamily starts also crushed expectations, though permits in this space were also well below the starts figure. This report will likely cause an upward revision to our multifamily starts forecast. We see considerably less near-term momentum in this space, as national rent growth is slow, while a record number of units are currently under construction already and, despite this month’s increase, permits have generally trended downward over the past year.

Nathaniel Drake
Economic and Strategic Research Group
June 23, 2023

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.