Is the Housing Market Finally Starting to Cool?

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Friday, September 24, 2021

There were several housing prints in the United States and Canada this week, all closely analyzed for hints of the direction of home prices. The housing market has been a primary beneficiary of the pandemic, given the low interest rate environment and a desire by many to move to larger, or different accommodations. However, supply chain issues have put a damper on recent data.

The U.S. housing starts number was mixed. Housing starts measure new construction that began in a particular month, and while the overall number was up—3.9 percent versus a consensus of 1.0 percent, single-family housing starts declined further in August.  Data also showed that builders were reluctant to take on new projects, as the number of houses authorized for construction but not yet started raced to a record high last month. This reticence was likely due to lingering supply chain issues, with falling lumber prices in the spot markets, yet to make their way down the waterfall, and other building materials still in short supply.

Meanwhile, existing-home sales slipped 2 percent in August from July,  to a seasonally adjusted annual rate of 5.88 million, per data from the National Association of Realtors (NAR). Annually, August sales fell 1.5 percent, but still remain above pandemic conditions.

While many homes are selling above list price, the rate of price growth is stalling. The median existing-home price rose 14.9 percent in August from a year earlier to $356,700. That is down from a nearly 18 percent increase the prior month.

And in Canada, more of the same. The red-hot housing market, which was a major issue in the recent snap election, also seems to be cooling. The new housing price index rose 0.7 percent, versus an expectation of 0.8 percent, with a rise in 13 out of the 27 metropolitan areas. Prior data also showed falling median prices for houses.

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