***Eye on the Economy is a biweekly survey of NAHB’s economic and housing analysis.
Newly constructed single-family homes sold at a seasonally adjusted annual pace of 482,000 in June, down 6.8% from May’s 517,000. Despite the monthly decline, the June measure was up 18% from the comparable June 2014 pace of 408,000 new home sales.
In general, new home sales have been trending up since 2012. NAHB expects this to continue through the rest of the year and into 2016. Strong job gains are bolstering housing demand. Rising builder confidence, housing starts and low interest rates all point to continuing recovery in the housing sector, even as industry headwinds, including access to lots and labor, will produce bumps along the road.
While demand should continue to expand, the June National Association of Realtors Pending Home Sales Index offered a good example of monthly deviations from the improving trend. The June report showed a decline of 1.8% for pending existing home sales. However, the June reading was up 8.2% from a year prior, marking the tenth consecutive year-over-year gain and illustrating the general improving trends.
It is worth noting that gains in existing home sales should help both the new home market (in terms of growth for move-up buyers) and the remodeling sector. In fact, the second-quarter measure for the NAHB Remodeling Index (RMI), an industry confidence reading, rebounded two points to a level of 59. Any level above 50 indicates that more remodelers report market activity is positive. The RMI has been above 50 for nine consecutive quarters.
Home purchase activity will need to grow faster if ongoing declines in the homeownership rate are to reverse. Among other causes, weakness among first-time buyers has substantially increased demand for rental properties and pushed the nation’s homeownership rate down to a post-1967 low point of 63.4% as of the second quarter, a decline of 130 basis points year over year.
However, some positive news for the future is found in the recent measures of ownership and rentership (the Census Bureau’s Housing Vacancy Survey). Household formations, the count of independent households who rent or own, have been growing. For example, in the second quarter, the count of total households stood at just under 117.3 million, a year-over-year gain of 1.6 million. Growth in household formations should improve demand for both owner and renter housing.
Stronger economic growth for the overall economy during the second half of 2015 will also help. For the second quarter of 2015, the Bureau of Economic Analysis advance estimate showed a gain of 2.3% for GDP, a substantial improvement over the first quarter’s 0.6% pickup. NAHB expects growth for the third and fourth quarters of GDP to be stronger than the second quarter, which should further promote job creation, household formations, and housing demand.