Eye on the Economy: Housing Starts Pause and Existing Sales Rise


Existing home sales posted a third monthly increase in June, passing a 5 million annualized sales pace for the first time since October of 2013. The recent gains reverse the negative trend that had set in after an increase in mortgage interest rates in the fall followed by an unusually long winter in some parts of the country. However, gains in existing homes sales were overshadowed by the declines in housing starts for the month. Nonetheless, a rise in builder confidence points to more growth for housing in the near-term.

According to the National Association of Realtors, existing homes sales increased 2.6% in June, but remain down 2.3% compared to a year ago. This was the third consecutive monthly gain in sales. The share of sales to first-time buyers (28%) remains below historical averages and persists as an area of market weakness. The market share of distressed sales (11%) is down from June 2013 (15%), but this may be connected to the expiration of the mortgage debt forgiveness tax rule, which may be inhibiting some short sales.

In contrast to existing home sales, the pace of housing construction slowed in June. According to the Census Bureau and HUD, total housing starts fell 9.3% for the month to a seasonally adjusted annual pace of 893,000. The decline was concentrated in the South, which experienced a drop in both single-family and multifamily construction. This regional drop was also witnessed for housing completions. Given the lack of weather or policy changes to explain the concentrated regional declines, a likely explanation was local labor and lots shortages slowing construction activity (starts and completions).

Nationwide, data from the Bureau of Labor Statistics reveal an increase in open, unfilled construction sector jobs in May. The count of construction sector opening positions rose from 92,000 in April to 130,000 in May on a seasonally adjusted basis. The May count of unfilled construction jobs is the third highest since the end of the Great Recession

Nonetheless, builder sentiment points to more positive conditions in the near term. The NAHB/Wells Fargo Housing Market Index (HMI) rose four points in July to a reading of 53, the first time since January that builder confidence passed the key break-even level of 50. The HMI increased for all four regions of the nation and all components (current sales, future sales and traffic) posted gains. The Census report for June also noted that single-family permits were up 2.6% for the month.

Inflation data for the month of June indicates that producer prices increased 1.9% over the last 12 months. Among building materials, softwood lumber prices declined 0.8% in June from May, flattening out in recent months but up from year-ago levels. OSB prices rose 3.9% in June but remain roughly in line with levels since their significant drop in mid-2013. Gypsum prices rose 3.0% over the month, reclaiming roughly half of the declines from recent months. Gypsum prices have risen 7.1% in the last 12 months and are up 49.5% from their early 2011 low.

Bureau of Labor Statistics data for consumer prices reveal an increase in June of 0.3% on a seasonally adjusted month-over-month basis. Over the past 12 months, prices on expenditures made by urban consumers increased 2.1% before seasonal adjustments. NAHB’s constructed real rent index indicates that housing rents have increased 1.2% over the last 12 months.

With respect to inflation-related monetary policy, NAHB expects the Fed to raise interest rates in the third quarter of 2015 as its asset purchase program winds down in 2014. Recent meeting minutes from the Fed emphasize that the central bank is not on a pre-set course and will monitor economic variables as its sets future policy.

In green building news, NAHB economists examined recent trends in power production property, such as solar panels, installed in new homes. Survey data from McGraw Hill Construction suggests that for single-family homes geothermal heat pumps are leading among such installations, with solar panels coming in second. Additional data on green home certification demonstrates that the National Green Building Standard is the leading certification system for single-family builders.

Building on recent examinations of rising home size, the market share of new homes of more than 5,000 square feet has risen to more than 3% of starts, mirroring the recent trend of rising median home size due to market weakness among entry-level buyers.

Revised NAHB analysis reveals that the Low-Income Housing Tax Credit program supports approximately 96,000 jobs in a typical year through the development and rehabilitation of affordable rental housing.

Lastly, NAHB published census data of its associate members. Associate members encompass a wide range of supportive industries and professions including, among others, specialty trade contractors, manufacturers, retailers/distributors, designers and architects. In 2013, associate members represented 68% of all NAHB’s members, while builder members made up the remaining 32%.

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