Eye on the Economy: Housing Starts Fall Back on Volatile Multifamily Data


The pace of total housing construction fell back in April due to a large swing in the rate of multifamily development. From the March annualized rate of 1 million starts, April saw a drop to an 853,000 annualized pace.

Single-family construction declined only a small amount, however, with starts down from a 623,000 rate in March to 610,000 in April. NAHB expects single-family production to continue to make steady gains over the next two years, rising to more than 1 million units annually.

For multifamily, the starts rate fell significantly from an unsustainably high level of 398,000 in March to 243,000 in April. Neither number is representative of the underlying trend, however. Since December, the average starts rate for multifamily has been 321,000. Multifamily housing starts are likely to exhibit continued volatility as the sector finds a sustainable annual level of production between 350,000 and 400,000. Continued growth in rent should support this trend. For example, April Consumer Price Index data indicate that real rents have now risen for three consecutive months.

Home builder confidence is rising once again after three months of decline. The May NAHB/Wells Fargo Housing Market Index rose three points to 44 from a downwardly revised April level of 41. All three components increased: current sales increased four points to 48, expected sales increased one point to 53, a seven-year high, and traffic increased three points to 33. 

One factor that held back builder confidence at the start of 2013 was rising building material prices. New data suggest that it is possible that this upward pressure on prices may be ending. While the monthly Producer Price Indexes (PPI) for framing lumber and OSB increased from March to April, 3.2% and 6.5% respectively, weekly data from Random Lengths indicate April may be the beginning of a reversal of the steep increases that have accompanied the housing market recovery. Such easing, if confirmed, will be reflected in May PPI data.

Other data indicate also offer good news and confidence with respect to the long-run increasing trend for housing starts. Nationwide housing affordability held near historic highs in the first quarter of 2013, according to the NAHB/Wells Fargo Housing Opportunity Index (HOI). The index came in at 73.7%, down slightly from 74.9% in the final quarter of 2012.

The HOI is the share of new and existing homes sold in a quarter affordable to a family earning the median income. An HOI of 73.7 means that 73.7% of all homes sold in the first three months of 2013 were affordable to families earning the national median income ($64,400).

In the first quarter of 2013, NAHB’s 55+ single-family Housing Market Index increased 19 points on a year-over-year basis to 46, which is the highest first-quarter number recorded since its inception in 2008 and sixth consecutive quarter of year-over-year improvements. The index is up on increases in consumer demand for homes and communities designed to address the specific needs of mature home buyers. 

The overall foreclosure situation continues to improve, per data from the Mortgage Bankers Association. The seasonally adjusted mortgage delinquency rate increased 16 basis points over the first quarter of 2013. Even with this quarterly increase, the current share of mortgages at some stage of delinquency still ranks as the second-lowest reading since 2008.

Foreclosure starts remained unchanged at 0.7% of all first-lien mortgages during the first quarter of 2013. A total of 15 states registered a quarter-to-quarter drop in new foreclosure activity, but the overall downward trend in foreclosure starts remains in place as 45 states saw a year-over-year decline.

The foreclosure inventory continues to shrink across much of the nation. During the first quarter, 3.55% of all loans were at some stage of foreclosure, a 19 basis point drop from the last three months of 2012 and an 84 basis point decline compared to the same period a year ago. This metric now stands at its lowest point since the end of 2008.

Against this broader housing market backdrop, new and existing home sales continue to improve. New home sales rose in April to a seasonally adjusted rate of 454,000, up 2.3% from the March pace. The sales level of January and April are the two highest months of new home sales since 2008. Completed, ready-to-occupy inventory fell to 39,000, matching a post-Great Recession low. As a result, the median price for new homes reached a record high ($271,600). However, this mark is as much due to the mix of buyers (more at the high end) as it is a function of improving housing markets. 

Similar to the new home market, existing home sales posted a small increase in April. According to the National Association of Realtors (NAR), total existing home sales increased slightly in April to a 4.97 million annual rate, up 9.7% as measured on a year-over-year basis.

At the end of April, total housing inventory increased 11.9% from the previous month to 2.16 million existing homes for sale. At the current sales rate, the April 2013 inventory represents a 5.2-month supply compared to a 4.7-month supply in March, and a 6.6-month supply of homes a year ago.

Rising housing inventory is consistent with rising prices. The median sales price for existing homes of all types in April was $192,800, up from $183,900 in March, and up 11% from $173,700 during the same period a year ago. NAR reported that April represented the 14th consecutive monthly year-over-year price increase.

However, a concern regarding the improvement in the housing market is the degree to which it is dependent on non-traditional buyers. In April, all-cash sales were 32% of transactions and investors accounted for 19%. However, first-time buyers accounted for 29% of April sales, down from historic norms of around 40%.

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