Eye on the Economy: New Home Sales and Starts Post Gains in April

Housing data for April offered positive news as the traditional spring housing season began with the pace of home building and new home sales increasing for the month.

The monthly rate of housing construction starts exceeded 1 million for first time since last year and housing permits were over 1 million for a third consecutive month. However, the monthly increases were almost entirely in multifamily rental construction. Single-family starts increased 5,000 on a seasonally adjusted annual basis to 649,000 from an upwardly revised March of 635,000.

Multifamily construction soared 40% to an annual rate of 423,000 starts, the highest since January 2006. Multifamily starts were particularly strong in the Midwest, where the pace more than doubled perhaps due to weather effects. Rental demand remains strong. Recent consumer price data, for example, indicate that inflation adjusted housing rents are up 1.2% year over year.

The pace of new single-family home sales increased 6.4% in April to a seasonally adjusted annual rate of 433,000, virtually matching the first quarter average of 434,000. The 26,000 monthly increase was entirely due to a 27,000 jump in sales in the Midwest region. However, this increase was not outside the survey’s regional confidence interval.

A positive component of the April new home sales report was a continued increase in inventory, now up to 192,000 homes for sale from a low of 142,000 in July 2012. Builders continue to experience supply-chain difficulties, but the slow increase in inventory indicates some ability to expand construction.

Existing home sales increased 1.3% in April but was down 6.8% from the same period a year ago. The National Association of Realtors (NAR) reported April 2014 total existing home sales at a seasonally adjusted rate of 4.65 million units combined for single-family homes, townhouses, condominiums and co-ops, up from 4.59 million units in March. Total housing inventory jumped 16.8% in April to 2.29 million existing homes due to typical seasonal patterns.

First-time buyers continue to display weakness in the existing home sales market, comprising 29% of April 2014 sales, down from 30% in March and unchanged from last April. The January first-time buyer share of 26% was the lowest since NAR began reporting that share monthly in October 2008.

Data for the first quarter of 2014 provide additional detail concerning the home construction market. Total townhouse construction declined on a year-over-year basis in the first quarter due in part to first-time buyer weaknesses. According to NAHB analysis of Census data, single-family attached starts totaled 13,000 for the quarter, compared to 15,000 during the first quarter of 2013. Over the last four quarters, townhouse construction starts totaled 66,000, down from the 72,000 total for the four quarters prior to this period.

The market share of homes built on an owner’s land, with either the owner or a builder acting as the general contractor, was effectively unchanged on a quarter-over-quarter basis at the start of 2014. NAHB’s analysis of Census data indicates that the number of starts of this type of building rose from 25,000 at the start of 2013 to 27,000 for the first quarter of 2014.

The average size of newly built single-family homes increased during the first quarter of 2014, with much of this ongoing multiyear trend of increasing size likely due to the greater proportion of move-up and higher income new home buyers. According to first-quarter 2014 data from the Census and NAHB analysis, average single-family floor area increased from 2,656 to 2,736 square feet, while the median rose from 2,465 to 2,483. Since cycle lows and on a three-month moving average basis, the average size of new single-family homes has increased 13% to 2,685 square feet, while the median size has increased more than 17% to 2,471 square feet.

While multifamily construction continues to expand due to rising rental demand, single-family starts built for rent were effectively unchanged at 4,000 starts for the first quarter of 2014. The market share of built-for-rent single-family remains elevated, but the share and count of starts appear to be declining off post-Great Recession highs, with the market share, as measured on a one-year moving average, standing at 3.3% for the first quarter of 2014. This is higher than the historical average of 2.8% but is down from the 5.8% registered a year ago.

After rising during the boom years and falling during the Great Recession, the average size of newly built, multifamily units remains close to levels seen a decade ago due to lack of typically larger condo construction. According to fourth quarter data from the Census Bureau and NAHB analysis, the average unit size for multifamily housing construction starts was 1,182 square feet. The median was 1,023. These current estimates are very close to the typical data from the 2001-2003 period.

As National Home Remodeling Month in May ends, NAHB continues to publish data and analysis concerning home improvement trends. This includes estimates of spending on improvements to owner-occupied housing by ZIP code. On average, total spending on improvements in a ZIP code is projected to be about $5.1 million in 2014.

The top five total-spending ZIP codes are all in Maryland, Texas, or Illinois. Each of these top five areas contains at least 15,000 owner-occupied homes and home owners who average at least $145,000 in income and are 60% or more college educated.

NAHB survey data recently revealed the leading green products used by remodelers. Nearly 9 out of 10 remodelers surveyed said they commonly used low-e windows during the past year. Next on the list were high efficiency HVAC systems and programmable thermostats at 70% each, closely followed by ENERGY STAR appliances at 69%.

Finally, industry survey data was published that examines consumer preferences when selecting an individual contractor for home improvement projects. “Reputation for quality construction” easily came in first, ranked most important by 45% of customers—over twice the “most important” percentage for any other attribute on the list. The survey also revealed that industry professional designations, such as NAHB Certified Graduate Remodeler and others, were important to home owners when selecting a service provider.

While weather played a significant negative role on housing and the economy in recent months, certain residential construction industry headwinds moved in positive directions in April but remain key concerns. With respect to building materials, softwood lumber prices were down 4% in April from March and off 8.2% from a peak one year ago. OSB prices continue to tread water so far in 2014, declining 0.6% in April, after a sharp 2013 reversal of the steep run-up in prices in 2012. OSB prices remain 23.8% above their average level in 2011. Gypsum prices declined 3.7% in April, the second monthly decline, but remain 41.9% above their average 2011 level.

Mortgage delinquency rates continue to decline. Data released by the Mortgage Bankers Association indicates that the delinquency rate for mortgage loans on one-to-four-unit residential properties, considered single-family properties, decreased to a not seasonally adjusted rate of 5.69% of all loans outstanding at the end of the first quarter of 2014, 106 basis points below the 6.75% delinquency rate recorded in the first quarter of 2013. This level represents the lowest level since the first quarter of 2008.

And in other finance news, NAHB survey data suggests that lending conditions for acquisition, development and construction (AD&C) loans continue to ease but remain tight. In the first quarter of 2014, the overall net tightening index based on the AD&C survey improved from -25.5 to -30.8. The index is constructed so negative numbers indicate easing of credit; positive tightening, so a lower negative index means greater easing.

Lastly in policy news, the Federal Reserve’s monetary policy committee turned its attention to the timing of its long-run intention to raise short-term interest rates. To avoid the adverse reaction experienced last spring during the speculation concerning the timing of quantitative easing tapering, the minutes included the phrases to communicate that the discussion was planning for the future. NAHB believes this moment will come during the summer of 2015.



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