***Eye on the Economy is a biweekly survey of NAHB’s economic and housing analysis.
Building on the recent good news for home construction, new and existing home sales posted gains in April as the economy improved after a weak first quarter. Revised figures from the Bureau of Economic Analysis indicated that the economy grew at a 0.8% rate at the start of the year. Incoming data suggest the economy in the second quarter has been growing at a 2% rate, reversing a recent trend of weakening growth.
Despite these trends, housing has been a bright spot. For example, sales of newly built single-family homes increased 16.6% on a monthly basis and 23.8% year-over-year in April, as the pace of new home sales rose to an eight-year high (at an annual rate of 619,000) according to estimates from the Census Bureau and HUD. Inventory declined slightly to 243,000 homes for sale, representing only a 4.7 months’ supply at the April sales pace. Inventory remains tight as the inventory of homes listed for sale included only 56,000 completed, ready-to-occupy residences.
Additional good news for housing came from the resale market. According to estimates from the National Association of Realtors (NAR), April’s closings of existing home sales increased 1.7% over the totals for March and were 6% higher than a year ago. Even more promising, the share of first-time buyers increased again, rising to 32% in April. Inventory remains tight however, standing 3.6% lower than a year ago and representing only a 4.7 month’s supply (similar to that of new homes).
Tight inventory conditions mean faster turnover, with 45% of homes on the market selling within one month, the highest such share since June 2015. NAR estimates suggest rising housing demand ahead. NAR’s Pending Home Sales Index jumped 5.1% in April to the highest level in over a decade.
Home construction indicators remain positive, in part due to limited housing options in many markets. However, builders should be cognizant of changes within business lending channels. For example, lending conditions are tightening in the multifamily market. While still positive, the NAHB Multifamily Production Index registered a score of 53 for the first quarter of 2016. This marks the 17th consecutive quarter the index has conveyed a level above 50 (where more developers report positive market conditions than poor). But the current index is still below levels set earlier in 2015, as lending tightens and some local markets seek a new balance between supply and demand.
With respect to AD&C lending, NAHB’s quarterly survey indicated that the loan market continues to ease at the start of the year, although at diminished rates compared to those in the recent past. In the first quarter of 2016, on net, 13.3% of builders and developers indicated that overall lending standards on AD&C loan availability had eased. In contrast, during the fourth quarter of 2015, a net share of 27.7% said that lending standards had eased, compared to 33.7% of respondents one year prior. This bears watching, as lending changes continue to occur amid declines in energy development and other commercial real estate activity.