Economic uncertainty has produced a double whammy for the housing market: sluggish home sales and plodding construction.
The problem, as ever, is the cost of housing: Home prices are out of reach for many who would like to buy.
“Pent-up housing demand continues to grow, though not realized,” Yun said in a statement accompanying April’s disappointing sales figures.
Every indicator concerning single-family homes — building permits, starts of new homes and completions — was down compared to a year ago.
When costs are growing but builders can’t raise prices, housing production slows down.
The housing market has been hit by two negative effects of economic uncertainty: slow home sales and slow construction. The slowest April for existing home sales in 16 years occurred last month, which was a harsh reminder to those hoping the housing market would pick up steam this spring after two extremely slow years.
According to the National Association of Home Builders and Wells Fargo’s May builder confidence survey, sentiment among home builders fell to a level not seen since November 2023.
The cost of housing remains the issue: many people who would like to purchase a home cannot afford the prices. Additionally, the tariff turmoil under President Trump has increased the cost of building new homes and increased the uncertainty surrounding the future for prospective homeowners.
As a result, there is a nation where buyers want to purchase and builders want to construct, but the future is too uncertain.
The construction has sunk.
The first problem is a decline in demand. Many Americans aspire to own a home, but they are unable to do so due to financial constraints. Since the pandemic, home prices have increased by almost 50%, and mortgage interest rates increased slightly last week to 6.86 percent, which is much higher than their pandemic low of 2.65 percent for a 30-year fixed-rate loan.
The median price of existing homes sold nationwide increased to $414,000, the highest price for the month of April and the 22nd consecutive month of price increases over the previous year.
The National Association of Realtors’ chief economist, Lawrence Yun, says that despite the U.S. S. creating millions of new jobs.
In a statement released in response to April’s dismal sales data, Yun stated, “Pent-up housing demand continues to grow, though not realized.”. “This demand can be released with the aid of any significant drop in mortgage rates. “.
Then there’s the complex supply outlook.
In April, the Census Bureau reported a decline in single-family home construction. Every single-family home indicator, including building permits, new home starts, and completions, decreased from the previous year. This year, permits for multiunit buildings have also decreased by more than 5%.
Future repercussions could result from this: fewer homes may be put on the market later if permits are not obtained now.
Robert Dietz, chief economist at the National Association of Home Builders, adds that “the tariff debate has created a lot of uncertainty.”.
Approximately 90% of single-family home construction is made of wood-framed homes, and 25% of the softwood lumber we use is imported from Canada, he claims, making it one of the major problems. “.”.
The duty on that Canadian lumber has been raised from 8point 05 percent last August to 14point 5 percent now. But that figure might rise as a result of upcoming Department of Commerce review. The price of framing lumber has increased by roughly sixteen percent in the past year.
Notably, the U. A. The Lumber Coalition contests the idea that property prices have increased due to lumber tariffs. The coalition claims that Canada is dumping too much supply into the United States. S. market and claims that the average new home’s construction costs are less than 2% related to lumber.
According to the NAHB, softwood makes up around 6% of a single-family home’s total cost when lumber, panels, and millwork are included.
All tariffs implemented or anticipated thus far, including those on lumber, have an average impact of almost $11,000 per single-family home, according to Dietz.
The NAHB/Wells Fargo survey found that 78% of builders had trouble setting prices for their homes because they were unsure of how much they could sell for and how much it would cost to build them.
A slowdown in housing production occurs when builders are unable to raise prices despite rising costs.
The fact that there are currently many existing homes for sale is another problem for builders, even though the future of new home construction is uncertain. In recent months, a lot of people put their houses up for sale, increasing inventory by more than 20% over the previous year.
Because of the competition, it might be more difficult to sell new homes, and builders will need to lower their prices. According to the NAHB/Wells Fargo survey conducted in May, 34% of builders lowered their prices during the month, compared to 29% in April. Even though the April report showed what Dietz described as a “surprise” rebound in new home sales, they are still down more than 1 percent so far this year.
awaiting its conclusion.
Many Americans had hoped to purchase a home this spring, but their plans have been derailed by high mortgage rates, stock market volatility, and worries about potential job loss. To put it briefly, a lot of potential customers are finding excuses to hold off.
Among them is biology professor Kassandra Ford, age 32.
Her mom sold her house this spring near Spartanburg, South Carolina, and she and her mom planned to purchase a home together in the Twin Cities, where Ford resides. They discovered that the local market was incredibly slow; it took roughly three and a half months to sell the house.
However, when it came time to shop for their multigenerational house in St. Paul, the Midwest is the only region where sales increased last month, so they faced competition.
They chose to take a break after losing two bids, one at the asking price and the other at $15,000 over asking.
According to Ford, “I’m monitoring Zillow, but compared to earlier, when I was probably looking every day, now it’s maybe once or twice a week.”. “We seem to be in a holding pattern right now. “.
Ford’s mom moved in with her after she re-signed the lease on her two-bedroom apartment rather than taking out a mortgage. Being able to share some expenses with someone else will be fantastic, especially given the state of the economy. “..”.
In a different season, they intend to try to purchase again. Their down payment fund will continue to grow until that time.
“All we’re going to do is hold tight, hold onto what we have, and monitor the situation,” Ford says.
