Housing starts forecast and inventory analysis - Brief Article

Home Channel News, June 18, 2001

Home building exceeds expectations Residential construction continues to remain resilient. April's housing starts increased to a 1.609 million annual rate, a 1.5 percent increase over March. Housing starts have remained near the 1Q average of 1.625 million units. Although housing starts are not as strong as a year ago, down 1.0 percent year over year, they continue to exceed expectations and provide a much-needed cushion for the slowing economy.

Starts of single-family homes reversed March's 6.3 percent decline by increasing 6.7 percent in April to a 1.288 million-unit rate. Starts have responded very well to the decrease in mortgage rates since the monthly peak of 8.51 percent in May 2000. However, mortgage rates are starting to head higher. April's monthly average on the 30-year mortgage rate increased 13 basis points to 7.09 percent from March. But even with this uptick, housing affordability has remained high enough to offset the negative influences of the weakening labor market, low consumer confidence and a struggling stock market.

New home sales dive, but are still up over last year Possibly indicating that the highs for the year have already been seen, new homes sales plunged 9.5 percent in April. The month's decline is not that surprising. The surprise is how well home sales held up previously. Sales averaged a record 964,000-unit pace during the first quarter and have averaged a 950,000-unit pace during the previous six months. That marks the strongest six-month period ever for new home sales.

Another reason sales have held up so well previously is that inventories of new homes have been so low for so long. That means there was still plenty of pent-up demand for new homes in the pipeline when the economy began to slow during the second half of last year.

Indeed, inventories are still extremely lean, even at April's reduced sales pace. At April's 894,000-unit annual sales pace, there is still just a 3.9-month supply of new homes on the market.