New home construction has been approximately steady since the large jump in June spurred by federal pump priming with the $8,000 first time buyer tax credit and a variety of programs to delay foreclosures and reduce monthly mortgage payments for existing homeowners. Resumed recovery is expected around yearend with an extension and expansion of the homebuyer tax credit.
Sales prospects in the new home construction market are improving for homebuilders. While permits, starts and sales were generally steady during the summer, the inventory of unsold new homes fell 10%, the number of homes under construction fell 7% and the number of home completed fell 13%. The long slide in home prices appeared to hit bottom with several month to month rises in the price index. Also, the materials price index for residential was unchanged in the summer and wage gains for residential construction workers dipped to a 0.3% annual gain. Existing home sales rose 13% and the inventory of existing homes for sale fell 5%. The only negative in the market environment is the likelihood of a rise in foreclosures as various moratorium programs expire. This will force another surge of homes onto the resale market.
Both of the remodeling tracking indicators show continued decline at a slowing pace. This is broadly consistent with the Census Bureau construction spending data which is flopping about from month to month in the $110-120 billion annual rate range.
Real consumer income is now dropping quickly which is trimming home affordability. But the home affordability index will remain over 140 into the winter which is much higher than needed to support the expected gains in housing starts and home sales. While the stimulus payments to households are now behind us, the index will be supported by 30-year fixed mortgage rates which will remain near 5% and $20-30 billion in added payments to consumers for COBRA health insurance and extended unemployment benefits.
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