Spring brought good news for housing: a rise in pending and completed existing home sales. New home sales declined significantly in March, but the current pace of newly-built home purchases is up almost 20% from a year ago.
Existing home sales soared 6.1% in March, with the share of sales for first-time buyers also increasing, according to estimates from the National Association of Realtors (NAR). The pace of existing sales was up 10.4% from the same period a year ago and has increased on a year-over-year basis for six straight months. The March increase was the largest monthly jump since December 2010.
As estimated by NAR, the first-time buyer share increased to 30% in March, up from 29% in February and 28% in January. Reports of easing mortgage standards will help this group, while a the return to a typical 40% share should come with the full economic recovery
Existing sales should increase in the months ahead, as demonstrated by the NAR Pending Home Sales Index, which increased 11.1% on a year-over-year basis in March. The index has now grown for seven consecutive months and has reached its highest level since June 2013.
Strength in the existing home sale sector is good news for remodelers. In terms of sector sentiment, the NAHB Remodeling Market Index declined to 57 in the first quarter, but has been above the key confidence mark of 50 for two years. NAHB is forecasting 2.3% growth for remodeling spending for 2015. And recently published NAHB 2014 survey data of professional remodelers indicated that once again kitchen and bath projects led project types, with window and door replacements coming in third.
Sales of newly built homes declined 11.4% in March to a seasonally adjusted annual rate of 481,000, according to data jointly published by the Census Bureau and HUD. However, the March rate of new home sales was 19.4% higher than the March 2014 pace.
Despite this drop, new home sales for the first quarter of 2015 reached the highest level experienced by the market since 2008. Average effective mortgage rates for new home sales remain low: 3.93% on average for March, according to the Federal Housing Finance Agency.
Additional data for the first quarter of 2015 indicate that the market share for FHA-backed mortgage sales of new homes increased to 16%, up from 10% at the end of 2014. This reverses a general trend over the last four years of declining shares for FHA-insured mortgages. However, as more first-time buyers enter the market, this share may experience some growth, along with a decline in the cash share of new homes, which is currently 4%.
Nonetheless, the homeownership rate for the United States continues to fall, as younger households instead fuel rental housing demand. According to the Census Bureau, the national homeownership rate fell to 63.7% for the first quarter. Ongoing declines for homeownership continue to be concentrated for households under age 45. In contrast, data for senior housing, such as the NAHB 55+ Housing Market Index, demonstrate strength.
However, a potential bright spot in the quarterly Census data has presented itself over the last six months. The rate of household formations appeared to pick up at the end of 2014, with recent gains coming in at a 1.5 million annualized pace, a significant uptick to post-recession trends. While much of this increase is and will continue to be concentrated in rental housing, higher rents will encourage existing renters to transition to homeownership in the coming years. Future quarters will prove to what degree this recent increase is a significant break with prior levels.
In the meantime, Census construction spending numbers for March illustrate the degree to which the ongoing home building recovery has been led by multifamily gains. Over the last year, the pace of private single-family construction spending increased 7.8% and multifamily construction spending increased 23.4%.
Finally, NAHB published survey data listing home builders’ reported top challenges for 2015. Topping the list was the cost and availability of labor, followed by building material prices. Recent NAHB Economics analysis highlighted recent developments in the residential construction labor force including various occupations’ wage gains over the 2012-2014 for the home building sector.