This is slowing activity in the mid- to upper-price ranges and restraining new home sales, says the report. Builders have been unable to construct at the entry-level price point because of elevated construction and land costs. Home sales activity has flattened as a result.
Risk of a housing shortage could rise as residential building continues at such a low rate. Multifamily developers have been setting a record pace over the past five years, but single-family home construction has remained less than half of levels prior to the Great Recession.
With the strong economy and tight labor market boosting household formation, residential deliveries will likely fall short of demand. Though pockets of overdevelopment may emerge, the broad-based shortfall of housing supply could expand the affordability gap and prompt renters to extend their apartment stay.
The report offered a couple of additional points:
· New home sales continue to be driven by trades of higher-priced homes with the median new home price rising 1.8% annually to $328,700.
· About 60% of all new home sales were priced above $300,000 during July.
· Apartment vacancy rate fell to 4.6% in the second quarter, down 10 basis points year-over-year amid strong demand. Despite thousands of Class A units completed in recent quarters, vacancy for this class remains tight at 5.1%. The average effective rent for Class A units is approximately $100 more than the monthly mortgage payment on a median-priced home, solidifying the shift in preference for renting versus homeownership.