April was a good month for housing.
Contracts for new home sales, as reported by the Census Bureau and HUD, were up 6.8% over March, at a 517,000 seasonally adjusted annual rate. And these gains are significant relative to last year’s numbers: The average pace of new home sales for the first quarter of 2015 (514,000) was 26% higher than the April 2014 rate of 410,000.
New home inventories grew slightly to 205,000, which is still well below the 317,000 50-year average but up 43% from the cycle low set in August 2012. New home prices were 8.3% higher in April, compared to a year ago, in part due to an industry shift to move-up buyers.
The National Association of Realtors (NAR) Pending Home Sales Index, a forward-looking measure of future existing home sales, was up 14% in April on a year-over-year basis and reached a nine-year high. This positive result contrasted with a 3.3% decline for the NAR estimate of April’s existing home sales, which may be down on lower inventory levels. Existing home sales should rise in the months ahead given improving job numbers and the increase in the pending home sales measure.
First-quarter data suggest improvements for a persistent headwind for residential construction growth: availability of acquisition, development and construction (AD&C) loans. NAHB analysis of FDIC data indicated that the stock of AD&C loans grew by 4.8% during the first quarter, with a year-over-year increase of 17%. NAHB survey data also indicate ongoing easing conditions for AD&C funds, particularly for constructions loans.
However, a lending gap remains, as evidenced by the fact that the stock of AD&C loans remains more than 73% lower than the first-quarter 2008 measure. Among other factors, tight credit for development purposes has produced a shortage of building lots. A May 2015 NAHB industry survey found that 62% of builders reported that the supply of lots in their areas was low or very low, up from a 43% response in September 2012. Shortages are most acute among desirable “A” location lots.
Nonetheless, home building is growing. April Census construction spending data revealed that single-family construction spending (estimates of completed construction value) was up 9% on a year-over-year basis, while multifamily construction spending was almost 25% higher. The growth for multifamily production is mirrored by the NAHB Multifamily Production Index, which has been in positive territory for 13 consecutive quarters.