Home Prices Rise for the 114th Straight Month
Plus: lumber ticks up, number of building permits also increases.
The National Association of Realtors reported this past week that the median home price for all homes sold in August 2021 was $356,700, which was up 14.9% from August 2020 ($310,400). Amazingly, this represented the 114th straight month of year-over-year increases in U.S. home prices. Prices rose in every region of the country in August including here in Maine, where, according to the Maine Association of Realtors, prices rose by 14.8% to a median price of $310,000.
So needless to say, the housing market remains hot. There may be signs that the upward price momentum could ease, though, as the number of transactions of single-family existing homes actually decreased nationwide in August by 2.8%. The number of Maine transactions actually decreased by slightly more, declining by 4.8% versus August 2020. This, to me, represents buyers pulling back a bit in the face of constantly rising prices. “The solution to high prices is high prices,” I have written before whether you are talking about lumber, copper, homes, or any other item for purchase, and as prices continue to rise there is a certain point where buyers are either priced out or just throw their hands up and say to heck it with it, I’m not doing this.
Several weeks ago I wrote that I do not see a housing bubble right now but I do anticipate perhaps a leveling off of prices in the months to come. That leveling off is not quite happening yet, but the slightly declining number of transactions does suggest to me that buyers are reaching their limits or at least gaining some patience.
Here are a couple more statistics that caught my eye over the last week:
Lumber
After experiencing a staggering rise and then a precipitous fall over the past year and a half, lumber has actually bounced back a bit in the last month. In fact, lumber futures are up 32% in a month. Why? My hypothesis is that just as things tend to overshoot on the high side, they also overshoot on the downside and the drop in lumber prices may have been excessive. Also, as prices dropped the way they did, it also loosened up a lot of DIY home projects that people had been delaying while prices were so high. When prices dropped, consumers came back to the lumber yard. But in doing so, prices may be reacting again by rising in the face of rebounding demand. That’s economics for you.
The chart below shows the amazing mountain peak of lumber futures over the last year. Note the bit of a rebound over the past 2-3 weeks. I don’t anticipate another mountaintop, but it will be interesting to see where lumber goes over the next few months:
Building Permits
A lack of inventory has plagued the housing market for several years now. There are signs things may be loosening, however. Per data from the U.S. Census Bureau, there were 1.73 million building permits for new homes in August, a 6.0% increase from July and a 13.5% increase from August 2020. As existing-home prices continue to rise, more consumers are looking to hire builders to construct new homes, which has likely been bolstered by the decline in lumber prices from May 2021-August 2021 as noted above, which makes the costs of materials cheaper (although, to be sure, the costs of other building materials continue to be quite high).
I will be keeping an eye on all of this over the coming weeks. I’m also interested to hear your perspective on how things are out there both for buyers and sellers but also for homebuilders and lumber producers and sellers. Thanks for reading and have a great week, everybody.
Ben Sprague lives and works in Bangor, Maine as a V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com. Follow Ben on Twitter, Facebook, or Instagram and subscribe to this weekly newsletter by clicking below.
The Sunday Morning Community
I want to thank everyone who offered feedback on my article from last week, “Where Are All the Workers?” Several people made the excellent points that I wanted to share as they offered good perspective on the question. By the way, many people shared last week’s article on Facebook, Twitter, and by forwarding the email, which I really appreciate. It helps to grow the audience as more people learn about and start reading The Sunday Morning Post. Here is a sampling of last week’s feedback:
Earl Black: “Another thing that may be adding to the labor problem is people who have had COVID and not fully recovered. I understand there is at times a long recovery period.”
Jennifer Delano: “I believe you are correct.. I'm the 4th bullet point. I can work, but schools are very unpredictable and I'm just staying home to be here when the kids need me. I'd be okay with a ‘mom schedule’ like a few days a week 9 till 2 ish, but I don't want to leave an employer hanging if I gotta go.”
Ronald Eastman: “Hypothesis #3 is definitely a big one in Maine, especially when you consider certain visa types like the J1 program weren't restarted until April. Many students in the southern hemisphere weren't able to apply in time to meet our summer peak and the restart date misaligned with their hemisphere's summer. Every J1 participant I know from 2020 wouldn't do it again due to anonymosity over the border closures they experienced when the pandemic began.”
Lori Parham from AARP notes age discrimination as a factor:
Keith Luke: “The only anecdotal caveat I would add is that there are thousands of elective workers between 55-75 who work mostly for fun. And working in the hospitality industry has ceased being fun for many of them. The risk of Covid exposure plays into it - but it's not the only factor.” Also from Keith Luke:
Bobby Duron: “Well stated. The reasons behind complicated problems are rarely explained simply.”
Cindy MacDonald Tuck: “You are absolutely right on track. I am an older worker who was going to do some substitute teaching. But I am now willing to risk it right now. And I am vaccinated.”
Diana Godin: “You mention the 1 in 500 deaths, but I also wonder about the number of people now on disability from sequelae of covid. Would those people affect the workforce participation rate?”
Eleni Boukidis: “Absolutely correct. I don't think most analysts account for the amount of people who have retired in the last year and 1/2. I have seen a substantial amount of that happening.”
Greg Clancey: “That was a well-balanced picture. I like that you built it around hypotheses as opposed to factors. Too many certainties all over the internet these days.”
Nazrin Dixon: “Another very insightful read. I wait for these every week and enjoy them thoroughly with my Sunday morning coffee! Thank you!”
Parting Thought
I saw my friend Gus Ofili, a real estate agent here in Bangor who I featured in an earlier article, share this meme on Facebook and I could not help but laugh. (The aging process of Tom Brady is an inspiration for all of us 30-something year olds by the way):
DIY HOMEBUYER: I’ll JUST WAIT UNTIL THE MARKET CRASHES
THE MARKET:
Got news tips or story ideas? Email me at bsprague1@gmail.com or ben.sprague@thefirst.com. Have a great week, everybody!