***Eye on the Economy is a biweekly survey of NAHB’s economic and housing analysis from Chief Economist David Crowe.
July housing data brought good news for both the newly built and existing home markets. July newly built homes sales, as reported by the Census Bureau and HUD, rose 5.4% from June and 25.8% from July 2014. The increase brings annual new home sales to 507,000, or just over halfway back to a normal year of activity.
Median new home prices increased 2% from July 2014 and average prices increased 4.8%. Sale prices have increased because the composition of homes sold has shifted away from starter or first-time buyer homes and toward move-up buyer products. New home inventories increased in July to 218,000, the highest level in more than five years.
Good news continued for existing sales as well. The Pending Home Sales Index, from the National Association of Realtors (NAR), increased in July for the sixth time in seven months. The index increased 0.5% in July from an upwardly revised June report, and is up 7.4% from the same month a year ago. For completed transactions, existing home sales increased for the third consecutive month in July, and remained at the highest level since February 2007. However, the first-time buyer share (28%) fell to the lowest level since January.
While global economic developments continue to rattle financial markets, estimates of U.S. GDP received a significant boost in the most current reading. The Bureau of Economic Analysis reported its second estimate of the rate of real GDP growth, revising the earlier 2.3% growth estimate up to a surprisingly strong 3.7% rate. The upward revisions were broad-based, with faster growth for consumption, investment, government spending and trade components of the economy.
Business investment, including inventories, was responsible for a significant amount of the revision. With inventory investment already elevated, and another portion of the upward revision for GDP growth due to state and local government spending, the trends point to a lower but respectable 3% growth rate for the economy going forward.
Construction continues to add to economic growth. Total private residential construction spending for July rose to a seasonally adjusted annual rate of $387 billion. Annually, multifamily spending is 21.2% higher compared to July 2014, while the pace of spending on single-family construction has expanded 15.8% on a year-over-year basis.
Finally, while NAHB expects multifamily construction’s growth rate to slow for 2015, multifamily developers remain confident. NAHB’s Multifamily Production Index (MPI) edged up one point to 55 in the second quarter, marking the 14th consecutive quarter that the index has been 50 or above. The MPI measures builder and developer sentiment on a scale of 0 to 100, where any number over 50 indicates that more respondents report conditions are improving than report conditions are getting worse.