Eye On Housing
*Eye on the Economy is an NAHB newsletter that is published every two weeks and takes a larger view of recent economic and housing policy news.
After soft economic and housing reports for February and March, recent data suggest a return to the trend of housing market improvement – a fitting theme for May, National Home Remodeling month.
Leading the flow of positive news was the NAHB/Wells Fargo Housing Market Index (HMI), a measure of single-family home builder confidence. At a reading of 29, the HMI was up five points from the April level. This marks the highest reporting of the HMI in five years, even accounting for the period during which the federal home buyer tax credit was in effect. All components of the HMI were up in May, including the gauge of sales expectations over the next six months.
Further, the NAHB 55+ Housing Market Index rose significantly in the first quarter of 2012 compared to the survey of a year ago, suggesting better times ahead for builders of senior housing.
Consistent with these surveys, housing starts rebounded in April to a seasonally adjusted annual rate of 717,000. The April report marked the sixth consecutive month with starts near or above a level of 700,000 units. Gains were experienced in both single family and multifamily. The improvement in April suggests that declines in March were temporary and due to unusually warm weather in the early part of 2012.
Multifamily starts in buildings with five or more units increased by 4% to a rate of 217,000. In addition, multifamily starts data for February and March were both upwardly revised, suggesting that the rate of multifamily construction, which has been leading the industry in terms of growth, was stronger than initially estimated. Taking into account the revisions, the starts rate for 5+ multifamily units has been above 200,000 for the last three months.
The single-family housing market is again showing signs of improvement after a brief pause in the last month or so. Driving this expansion is the fact that housing affordability continues to improve.
The NAHB/Wells Fargo Housing Opportunity Index reached an all-time high for the first quarter of 2012. At a level of 77.7, the index indicates that more than three-quarters of all existing and new homes for sale are affordable for an average family’s income. However, it is worth noting that home buyer access to credit continues to hold back housing demand, despite historic affordability conditions.
Nonetheless, new home sales in April (343,000 at a seasonally adjusted annual rate) were up 3.3% over the March tally, and up nearly 10% from this time a year ago. Prices remained relatively flat, perhaps indicating emerging nationwide stability in pricing for new construction. Inventories of new homes ticked up for the first time in two years, but only marginally so. Inventory remains low – a 5.1 months’ supply. Finally, the March estimate of new homes sales was revised upward.
Similarly, the April existing homes report from the National Association of Realtors (NAR) presented more good news. Existing single-family sales were up 9.9% from a year ago and 3% from March. Existing condominium and co-op sales were up 6% from March and more than 10% from a year ago. Inventories were up in March, but this is consistent with seasonal patterns. The median sales price was up significantly in March, more than 10%, but this is indicative of a change in the sales mix rather than a large jump in national house prices. This good news for April is consistent with the previous reading of pending home sales from NAR.
Good news was also reported by the Mortgage Bankers Association mortgage survey, which showed the delinquency rate for mortgages fell to 7.4% during the first quarter of 2012. This marks the lowest reading in five years and is now roughly at normal levels. Short sales continue to grow, however. According to mortgage loan service provider Lender Processing Services, short sales surpassed foreclosure sales for the first time during the first quarter of 2012.
In other economic news, consumer and producer price indices remained relatively unchanged in April. The Consumer Price Index was unchanged, in part due to a 1.7% decline in energy prices, despite gasoline prices peaking at $4 a gallon in April. Declining natural gas prices were responsible for the overall drop. Moving in the opposite direction, residential rents were up more 2% in April, adding to the relative affordability of home purchases. Producer prices were slightly down in April, with a small decline in the much-watched price of gypsum, reducing its year-to-date increase for 2012 to 11.6%.
May is National Remodeling Month, and with this in mind, NAHB Economics continues to examine the issues involving the remodeling sector. While the economic benefits of home building are often cited in the media, remodeling has similar economic benefits. NAHB estimates that every $10 million of remodeling activity generates on average 78 local jobs, plus additional economic benefits in business income and state and local tax and fee revenue.
Remodelers who are NAHB members tend to work on larger projects, according to recent survey results. In fact, more than one-third of jobs undertaken by NAHB remodelers have a final price tag of $50,000 or more. The data also indicate that NAHB remodelers perform about 95% of projects totaling $100,000 or more but only about 20% of jobs costing $2,500 or less.
NAHB survey data indicate that the main drivers of remodeling remain constant. Survey data from the first quarter of 2012 find that the “need to repair/replace old components” and “desire for better/newer amenities” are still why most customers choose to remodel their homes, as compared to other options including energy efficiency and increasing the value of the home as an investment. The data reinforce the notion that owners are interested in enhancing the spaces in their homes more for themselves than future owners.
Finally, NAHB recently critiqued a report from the Government Accountability Office (GAO) that suggested possible changes to the widely used section 25C remodeling tax credit for energy-efficient upgrades to existing homes. The heart of the NAHB critique was that the GAO report missed the most salient point: the tax rule expired at the end of 2011 and should be extended to continue its policy benefits.
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