Economists Agree That Housing Recovery Should Continue

April 24, 2014

Yesterday, NAHB hosted its bi-annual Construction Forecast Webinar (CFW). The CFW featured three industry experts. NAHB Chief Economist David Crowe was joined by Maury Harris, Chief US Economist at UBS, and NAHB Senior Economist Robert Denk to present views on the outlook for the US economy and the housing market more specifically.

Here are the major points from the presentation:

David Crowe, Chief Economist at NAHB, highlighted the importance of an improved economy for a continuation of the housing market recovery. Recent growth in GDP and payroll employment as well as a decline in the unemployment rate were cited as evidence of current economic strength, and these trends are expected to continue. The demand side of the housing market equation has shown signs of improvement. Consumers have expressed greater confidence and have followed up this sentiment by purchasing durable goods such as home furnishings and automobiles. Despite slightly higher interest rates, housing remains affordable. Nevertheless, home builders still face significant headwinds. These include lot supply and labor availability. Credit access has improved, but likely hasn’t returned to normal. However, these supply-side constraints should recede over time. Taken together, improving economic fundamentals combined with a more optimistic consumer and an increasing need for new homes should support a continuing recovery in the housing market.

Maury Harris, Chief US Economist at UBS, expressed the view that a housing market recovery and broader economic recovery will depend on the availability of credit. He noted that banks currently have about $2 trillion in lending capacity courtesy of monetary policy, but that lending standards remain tight. As the risk associated with lending shrinks, banks will increase their willingness to lend, which should support job growth. He presented evidence that the easing process may have already begun; financial market measures of risk are declining and lending standards are beginning to ease. Ultimately, as the employment situation improves, especially for “millennials”, household formations should expand and pent-up demand should be released, resulting in greater home sales and higher home prices. As a result of eased lending standards and an expanded capacity to lend, both the housing market and broader economy are expected to strengthen.

Robert Denk, Senior Economist at NAHB, agreed with the general consensus that the housing market recovery should strengthen over the next few years, but noted that the recovery will vary across the country. The regional variation partly reflects the depth of each state’s housing market contraction. States where the contraction was greater will take longer to recover, while states that experienced a relatively shallow decline will recover more quickly. Second, the extent of the housing bubble, symbolized by a house price-to-income ratio, varied amongst states. States such as Florida and Nevada experienced a ratio that was double their longer-term average while states such as Wyoming and Kansas saw their ratio peak at less than 20% above their long-term average. Regional variation will also be affected by foreclosures, both the level of foreclosures and the speed of the foreclosure process. States with a larger foreclosure inventory will take longer to rebalance supply and demand and return to normal levels of production. At the same time, eliminating the foreclosure inventory is more difficult in states that have a judicial process in place to govern foreclosures.  Finally, regional variation will result from the strength of each state’s underlying economy. Housing production will be better supported in states with a more robust rate of economic growth.

Homes Under Construction Rises for 28th Straight Month

January 20, 2014

Although housing starts may have declined slightly in December, they remain at roughly (a seasonally adjusted annual rate of) 1 million units.  Not only is this relatively strong compared to the recent history, it means that new homes are feeding into the beginning of the production pipeline faster than they’re leaving at the other end (as completions have fluctuated within a fairly broad but lower band of roughly 700,000 to 830,000).

As a result, the number of new homes under construction increased for the 28th consecutive month in December, from a seasonally adjusted 688,000 to 707,000—breaking above the 700,000 barrier for first time since March of 2009.


As reported last month, the growth continues to come from both single-family and multifamily construction.  In December, the number of single-family homes being built increased for the 23rd time in the 24 months—from 331,000 to 339,000.  Meanwhile, the number of apartments under construction increased for the 32nd time in 33 months—from 357,000 to 368,000.

One of the reasons the rate of completions is lagging starts and causing the number of homes under construction to swell is that, after a prolonged downturn, it’s difficult to attract factors of production back into the market.  Over the past year, shortages have popped up in the markets for certain building materials, developed lots, and skilled labor.  A current example is the high share of unfilled job openings in the construction sector reported by the Bureau of Labor Statistics.

Homes Under Construction: A Good Sign of Recovery

December 18, 2013

Although reports on the Census Bureau’s New Residential Construction release usually emphasize housing starts (and may mention permits), the number of homes under construction is also worth looking at, and at this time is a particularly good indicator of sustained recovery in the home building industry.

The Census Bureau’s latest release shows that the seasonally adjusted number of homes under construction has now increased for 27 months in a row, going from 413,000 in August of 2011 to (a preliminary estimate of) 685,000 in November of 2013.


The increases have come from both single-family and multifamily construction.  The number of single-family homes being built rebounded in November after dipping slightly in October—but prior to that had increased for 21 straight months, with the changes taking us from 236,000 in December of 2011 to 329,000 in November of 2013.   Meanwhile, the number of apartments under construction was flat in July of 2012, but otherwise increased every month from August 2011 to November 2013, going from 174,000 to 356,000 over that span.

During relatively stable periods, there’s a rough balance between starts and completions, and the number homes being built is likely to fluctuate in either direction.  But during a strong sustained trend, the normal balance may be disrupted as the time it takes to build a home speeds up or slows down and the numbers of housing units moving into and out of the pipeline at either end diverge.  In times like that, movement in the number of units under-construction can be very persistent.

During the latest housing downturn, for instance, the number of homes under construction declined every month for over four straight years, with the declines continuing well after it appeared starts had bottomed out.  Now, the “under construction” series is providing some of the most consistent evidence of the industry’s ongoing recovery.

UC-Long Term

The number of homes under construction is also of interest, because it’s the most direct determinant of the demand for labor.  NAHB has estimated that, nationally, building an average single-family home requires enough labor to keep 3.05 people employed full-time for a year (including the upstream effects of jobs in manufacturing and product distribution), and an average rental apartment requires enough to employ 1.16.

House Price Growth Highest in 7 Years

October 31, 2013

Standard & Poor’s and Case-Shiller reported that house prices continued to rise in August. According to the release, both the S&P/Case-Shiller House Price Index 20-City Composite and the 10-City Composite rose by 12.8% on a year-over-year not seasonally adjusted basis, the largest increase in house prices since February 2006. House price gains were largest in Las Vegas, 29.2% and San Francisco, 25.4%. Meanwhile, house prices in New York saw the slowest growth, 3.6%, over the previous 12 months.

Standard & Poor’s calculates tiered house price indexes for 16 of the 20 MSAs included in the House Price Index – 20 City Composite. Tiered indexes measure changes in the value of existing single-family houses in three price tiers – low, middle, and high. Each tier represents approximately one-third of the sales transactions in each respective market. A previous post illustrated that house prices in the lowest tier tend to be more volatile than house prices in the middle and upper tiers; house prices fell further during the housing bust and have grown faster during the housing recovery.

However, this spread between growth rates among house price tiers stands in marked contrast to the historical performance of house prices. It is also a distinguishing factor between cities where house prices have recovered and areas where house prices are still recovering. As Chart 1 illustrates, while house prices across all three tiers declined following the housing bust, house prices in the bottom third of the Phoenix house price distribution fell the most and subsequently rose the most.

At the bottom of the housing bust in April 2009, the annual rate of decline in low tier house prices was 58.4%, while the annual rate of decline for house prices in the middle and upper tier was 34.9% and 27.6%, respectively. In April 2010, the annual pace of growth in the low tier was 26.3% while it was only 2.9% and 1.9% in the middle and high tiers. After leading the decline in April 2011, the annual rate of increase in the low tier has exceeded the growth rate in the middle and high tiers. As of August 2013, the spread has narrowed somewhat as the annual rate of increase in the low tier was 30.7% the annual increase in the middle and high tiers was 23.1% and 15.2% respectively.


In contrast, house prices across all three tiers in Denver have changed at more similar rates. According to Standard and Poor’s/Case-Shiller, Denver house prices set a new record high in August 2013. As Chart 2 illustrates, although house prices in the low tier fell more than house prices in the middle and high tiers over the housing bust, the difference in the year-over-year rate of decline was not as wide as the spread in Phoenix.

At its depth in March 2008, the annual rate of decline in the low tier was 10.8%, while the annual pace of decline in the middle and high tiers was 5.2% and 3.5% respectively. At their post-boom peak, the annual rate of increase in the low tier reached 17.6% while the annual increase for the middle and high tier was 10.5% and 7.8% respectively. In August 2013, the annual rate of growth in the low tier was 12.9%, while it was 10.9% and 8.7% in the middle and high tiers.


Chart 3 shows the spread in the growth rate between the high tier and the low tier for 3 cities where the house price decline and recent house price growth have been most pronounced, and for Denver, where house prices recently set a record high. According to this chart, the relative parity of house price growth across tiers before the housing boom and the disparity during the bust (widening of the spread) suggests that one indicator of normalization of house prices in a market would be a return to parity in growth rates across the tiers and a narrowing of the high-low spread. As Chart 3 illustrates, the 2012-2013 inter-tier price movements significantly widened the spread, especially in Phoenix, Las Vegas, and San Francisco, indicating that the high and low tier growth rates were diverging. The recent 2013 narrowing of the spread (except for San Francisco) indicates the high and low tier growth rates are converging.

For full histories of the composites and 20 markets included in the Case-Shiller composites, click here cs.


House Prices Continue Their Ascent, Contributing to Broader Economic Recovery

October 24, 2013

According to the Federal Housing Finance Agency (FHFA), house prices rose in August, albeit at a slower month-over-month pace than in July. In August, house prices climbed by a seasonally adjusted rate of 0.3%, 0.5 percentage points slower than then 0.8% increase that took place in July. Over the past twelve months house prices have risen by 8.5%.

Month-to-month growth in U.S. house prices reflected increases in 7 of the 9 Census Divisions. The largest monthly increases took place in the Mountain division (1.3%), which includes Nevada, the West North Central division (1.2%), which includes North Dakota, and the Pacific division (0.8%), which includes California. Gains in these 7 areas of the country were partially offset by declines in the East North Central division (-0.3%), which includes Michigan, and the South Atlantic division (-0.5%), which ranges from Delaware to Florida.

Despite a deceleration in house price growth, August marks the 19th consecutive month-over-month increase in house prices. Over this period, January 2012 to August 2013, house prices have risen by 12.7% and have returned to a level last seen in April 2005, surpassing their pre-boom level. The recovery in house prices is confirmed by the NAHB/First American Leading Markets Index (LMI). This index uses house prices, permits, and employment to track the economic and housing recovery in the US. The index shows that while the U.S. is recovering from the worst of the housing bust and resulting recession, economic activity nationwide has not fully recovered. According to the LMI, the U.S. currently has a score of .85, .15 points from reaching 1.0, a full recovery. With a component score 1.18, house prices have recovered nationwide. However permit activity and employment, with component scores of .43 and .94 respectively, have yet to reach a full recovery.

For full histories of the FHFA US and 9 Census divisions, click here.

NAHB Forecast Indicates Continued Recovery of Housing Production

October 3, 2013

Yesterday, NAHB hosted its Fall Construction Forecast Webinar (CFW) featuring three renowned industry experts. NAHB Chief Economist David Crowe was joined by Mark Zandi, Chief Economist at Moody’s Analytics, and NAHB Senior Economist Robert Denk to present views on the outlook for the US economy and the housing market more specifically.

Here are the major points from today’s presentation:

Mark Zandi expressed optimism about the growth of national output (GDP). He expected net growth of about 1.5% in 2013, around 3% in 2014, and about 4% in 2015. His reasons for optimism were based on a fading of fiscal drag on economic growth (i.e. payroll tax increase, sequester, etc.), improved conditions in the private economy (profitability at private corporations, stability in the banking sector, and household de-leveraging), and an expectation that housing supply will not meet demand. However, he noted that there are significant headwinds which could offset, in whole or in part, the improved situation. These include high level of perceived political uncertainty, a lack of hiring by new businesses, and tight mortgage credit. In addition, the Federal Reserve’s ability to shrink its balance sheet in a manner benign to the economy is not fully certain.

David Crowe, Chief Economist at NAHB, noted that economic growth is expected to accelerate over the coming years and recent growth has reflected improvement in the housing market. At the same time, employment is rising. Although mortgage rates have risen in recent months they remain below historic levels. In addition, he noted that both household balance sheets and overall consumer confidence have improved. Consequently, consumers have increased their purchases of durable goods such as cars and furniture, and have indicated a willingness to purchase a new home. The housing recovery is also supported by rising household formations and rising population in prime household formation years. However, the optimism for a continued recovery in housing may be siphoned by tight mortgage credit conditions, high labor costs faced by builders, a shortage of lots, elevated materials costs, and lower appraisals.

Robert Denk, Senior Economist at NAHB, was also sanguine about the prospects for a continued recovery in housing, but noted that its pace will be uneven in states around the country. For example, single-family housing starts are expected to reach 93% of “normal” by the end of 2015. However, states that did not depart as far from normal (North Dakota and Wyoming) during the housing bust are further along the path of recovery then states where housing starts virtually collapsed (Nevada and Michigan). In addition, eliminating the foreclosure inventory, a key component of the housing recovery, is more difficult in states that have a judicial process in place to govern foreclosures. Finally, as the recovery continues, the path to normality will begin to reflect the underlying economies of each state and not solely the boom-bust cycle of the housing sector.

House Prices Move Higher

June 25, 2013

Nationally, house prices continued to rise in April, contributing to the overall recovery in U.S. house prices. According to the most recent release by the Federal Housing Finance Agency, U.S. house prices rose by 0.7% on a month-over-month seasonally adjusted basis in April. This is the fifteenth consecutive monthly increase for the House Price Index – Purchase Only. Since January 2012, house prices have risen by 9.9%.

The April increase in house prices was geographically widespread, increasing in every division of the country. As Chart 1 illustrates, the largest gains took place in the Pacific and Mountain divisions, regions of the country containing states, like Nevada and California, that experienced the largest price declines.


Meanwhile, Standard and Poor’s reported that its house price index also rose in April. According to the most recent release, the S&P/Case-Shiller House Price Index – 20-City Composite grew by 12.1% on a year-over-year not seasonally adjusted basis. Following 20 consecutive months of year-over-year declines, house prices registered their eleventh consecutive year-over-year increase in April. House price growth in San Francisco, a city in the Pacific region, and in Las Vegas, a city in the Mountain region, eclipsed house price growth in Phoenix, a city in the Mountain region. However, as chart 2 illustrates, each of these cities in addition to Atlanta experienced year-over-year house price growth greater than 20.0%. April is the eighth consecutive month that Phoenix has experienced a 12-month price increase greater than 20.0%.


Rising house prices for existing homes, such as those counted in the FHFA and in the S&P/Case-Shiller House Price Indices, is a net positive for the housing recovery. Recovering prices will improve conditions for builders, lead to higher inventories of new construction, and motivate potential sellers of existing houses to come back into the market. Data released jointly by the US Census Bureau and the US Department of Housing and Urban Development showed that newly constructed single-family houses sold at a seasonally adjusted annual rate of 476,000 in May, 2.1% higher than level of new single-family houses sold in April. Going forward we expect house prices to continue to rise, by 9.5% overall in 2013 and by 4.5% in 2014.

For full histories of the 20 markets included in the Case-Shiller composite, click here cs.

For full histories of the FHFA US and 9 Census regions, click here fhfa.

Rental Market Continues to Strengthen

June 6, 2013

The most recent data from the Survey of Market Absorption of Apartments (SOMA) showed that completions of privately financed, nonsubsidized, unfurnished rental apartments continued to climb in the fourth quarter of 2012. The reported 31,600 completions in buildings with 5+ units were slightly above the third quarter level and more than doubled since the fourth quarter of 2011. At the same time, the absorption rates (units rented or sold after construction of the property is complete) remained high, close to 65 percent. Averaged over 2012, the apartment absorption rates reached 64 percent, a level not seen since 2001.


The condo and co-ops completions remained at historically low levels - only 1,800 units were completed in the fourth quarter of 2012. However, the condo absorption rates improved remarkably. About 78 percent of the condominiums completed in the fourth quarter of 2012 were sold within three months of completions. This rate is 20 percent higher from the previous quarter and 33 percent higher from a year ago.  Over 2012 the condo absorption rates have averaged around 66 percent, marking the highest reading since 2006. Leaner inventories should bolster condo and co-op construction activity going forward, but we expect these units will maintain a diminished share of overall 5+ multifamily production.


The SOMA also reported that approximately 8,100 federally subsidized or tax credit units were completed in the fourth quarter of 2012. This represents a decline of 3,400 units since the previous quarter and 4,100 since a year ago.


House Prices Continue to Rebound

May 23, 2013

Nationally, house prices continued to rise in March, contributing to the overall recovery currently underway in U.S. house prices. According to the most recent release by the Federal Housing Finance Agency (FHFA), U.S. house prices rose by 1.3% on a month-over-month seasonally adjusted basis in March and 1.9% on quarter-over-quarter basis. This is the fourteenth consecutive monthly rise and the seventh consecutive quarterly increase for the House Price Index – Purchase Only (HPI). Over the past year house prices have risen by 6.7%.

The March increase in house prices was geographically widespread, increasing in every division of the country. The Census Bureau uses divisions to segment the four major regions of the country; Northeast, Midwest, South, and West. As Chart 1 illustrates, every division experienced a month-over-month increase in house prices, furthering the price recovery underway in each division.


Although house prices have extended their gains, they have not fully recovered their pre-bust peak. However, it’s clear from the chart that price appreciation accelerated during the boom compared to earlier years. In hindsight those gains were unsustainable and the declines represent a correction, purging the speculative bubble. The recent increases are based on a return to a fundamental balance between house prices and incomes. According to the HPI, house prices are now on par with those that prevailed in November 2004.

For full histories of the FHFA US and 9 Census divisions, click here.


Improving Markets Index: Erie, PA MSA

September 27, 2012

NAHB recently unveiled an index that tracks housing markets on the mend, the NAHB/First American Improving Markets Index (IMI).  The IMI highlights the fact that housing markets are local and that there are metropolitan areas where an economic recovery is underway.  The index measures three readily available monthly data series that are independently collected and indicative of improving economic conditions.  The three series are employment, house prices and single family housing permit growth.

For the twelfth release , 99 markets are classified as improving under a conservative examination of local economic and housing market conditions.  Among these areas is the Erie, Pennsylvania metropolitan statistical area (MSA).

The improvement of the Erie economy and its housing market is due to several factors including a recovery in manufacturing, which employs about 25% of the workforce, its position as a major retail center, drawing shoppers from the tri-state area (OH, NY and PA) as well as Canada, and its position as a fast growing regional healthcare center with a number of large hospitals including UPMC Hamot, Millcreek Community Hospital, and St. Vincent Medical Center.  In addition there is Saint Mary’s, a large nursing home with numerous facilities and Regional Health Service Inc. with many offices scatterd across the area and the already large and expanding  Lake Erie College of Osteopathic Medicine (LECOM) which has a medical school, school of pharmacy and a new dental school.  Erie also benefits from a steady stream of tourists who travel from Cleveland, Pittsburgh and Buffalo to enjoy access to Lake Erie and beautiful Presque Isle.  Erie is also home to a number of colleges including (Penn State) Berhend College, Gannon University, Mercyhurst University and Edinboro University.  Lastly, Erie is home to the Erie Insurance Group, GE Transportation Systems which makes among other things locomotives, Plastek Industries and a large Lord Corporation facility.            

According to home builder Mike Corsi, Vice President of the C & C Development Group, “things are definitely getting better.  The combination of growth at the hospitals and universities and turnover at our large firms has guaranteed a steady stream of well paid households that continually relocate here for work.  In addition, growth at LECON has resulted in a shortage of rental apartments for the students and increased demand for housing from new faculty that frequently results in a demand for new housing.   We are also witnessing a rise in remodeling activity.  It’s being caused by the simultaneous realization by many home owners that they will be staying their existing house for a while longer, and that home prices are on the upswing.”  He concluded by saying “tourism also is a big help.  While many tourists come just for the weekend to enjoy the water, the vineyards or skiing, others buy cottages and stimulate the economy in that way.”              

According to Jim Grieshober, Owner of J.E. Grieshober Plumbing-Hydronics , “Erie never saw huge increases in real estate prices and as a result has not seen much in the way of a decline either.  We miss the highs and the lows.  And, of late pent-up demand is starting to make itself felt among those who are more secure in their job and can get a loan.  Things would be even better if only the credit situation improved and if new regulations that add thousands and thousands to the price of a new house had not been passed.  That being said, the cost of living is low, Lake Erie is quite a draw and there is not much inventory around.”  Whatever the cause, house prices are definitely firming.  They are up 1.4% since the trough in February 2011 and are off less than 3.7% from their all–time high set in December 2009.    

Improving economic conditions have resulted in payroll employment being down exactly 2% from its peak in June 2000 and up by a healthy 9.9% since the trough in January 2010.  Single family permitting activity is up 8.0% on a seasonally adjusted monthly average basis from the trough set in April 2011.  While new homes are being built in many parts of Erie, activity has been primarily centered in a ring around the outskirts of Erie extending from Girard Township, Fairview Township and Millcreek Township in the west, through Summit Township in the south and Harborcreek Township in the east.


Get every new post delivered to your Inbox.

Join 7,144 other followers