In many parts of the country, spring began with winter-like conditions persisting. Without a doubt, unseasonably cold temperatures reduced economic activity during the first quarter of 2014, including home sales and construction. However, housing demand also weakened due to recent changes on the demand side of the market. Such changes can be seen in the contrasting data concerning new and existing home sales.
New home sales remained effectively flat for the first two months of the year. According to the Census Bureau and HUD, new home sales declined 3.3% in February, yet the January-February average sales pace was approximately the same as the fourth-quarter 2013 seasonally adjusted annual rate of 447,000. New home inventories are rising in anticipation of a better spring, up 3,000 homes in February compared to December.
In contrast to new homes, existing home sales experienced a significant decline in recent months. Since July 2013, the pace of new home sales increased 18%, while existing single-family home sales declined 15%. February existing home sales, according to the National Association of Realtors (NAR), were down 0.4% for the month and off 7.1% from a year ago.
Aside from weather factors, part of the recent decline is due to a slackening of volume in distressed sales, which are off from 25% of the market a year ago to 16% in February. All-cash sales continue to play a dominant role in the existing home market (35% of transactions), while the first-time home buyer share rose from 26% in January to 28% in February.
This weakness in existing home sales can be expected to continue. The NAR Pending Home Sales Index — a useful indicator of future sales volume — decreased 0.8% in February, marking eight straight months of decline.
Despite these declines, home prices are rising, albeit at a slowing rate. For example, January’s Case-Shiller 20-city index showed a 0.8% monthly increase, marking the 23rd monthly increase. Consumer confidence indicators continue to show high levels of interest in purchasing a new home, although overall levels of sentiment have been mixed due in part to recent weather impacts.
The softness in recent housing data also appeared in construction spending data from the Census Bureau. Total private residential construction spending declined in February after three consecutive months of increase. The reading was down 0.8% from January, but still 13.5% higher than a year ago. Month-over-month single-family spending decreased by 1.1%, while the home improvement category decreased by 1.3%. Multifamily construction rebounded from a drop in January with a strong month-over-month increase of 2.6%.
In analysis news, NAHB continued its review of home buyer preferences, with new survey data indicating ethnic differences in preferences for items like kitchens and bathrooms. And NAHB economists used American Community Survey data to track the top metro areas by single-family housing market share and lowest home owner vacancy rates.
In tax analysis, NAHB reported that property taxes continue to be the primary revenue source for state and local governments. And new IRS data shows that the volume of remodeling activity generated by the 25C tax credit experienced a significant drop after 2010 policy changes.