by David Crowe — 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.
Recent economic data indicate that the overall economy has entered a slow growth period. Nonetheless, during this period economic indicators have generally suggested that housing, and home building in particular, is an important source of economic growth. The question is whether the building recovery in housing will be affected by the slowing of the rest of the economy. In general, while NAHB expects occasional ups and downs for housing, the forecast calls for continued improvement for housing markets.
Housing starts data for the month of July offer a good illustration.Construction of new homes slowed slightly in July to an annual rate of 746,000, down 1.1% from the revised June rate of 754,000, which was a seven-year high. The decline was concentrated in the single-family sector where starts fell 6.5% to an annual rate of 502,000, again down from an elevated rate of 537,000 in June, which was the highest since the end of the home buyer tax credit in 2010.
However, the decline in single-family starts is more likely an adjustment to a very healthy June rate, than it is a sign that the budding housing revival is in trouble. NAHB expects the annual rate of housing starts in the third quarter to be 765,000 or about a 15% increase over the third quarter of 2011.
Recent survey data of single-family home builders provide supporting evidence. The August NAHB/Wells Fargo Housing Market Index (HMI) reached a five-year high of 37, with all three components (present conditions, six-month forward-looking conditions and prospective traffic of buyers) of the index at similar highs. The expectation component of the index increased to 44, the highest since March 2007 when it was at 50, a level where equal numbers of builders foresee a good market as see a poor market.
Similarly, the NAHB’s 55+ HMI survey, which reports builder confidence in the market for new 55+ single-family homes, increased significantly in the second quarter of 2012. Compared to the same period a year ago, the 55+HMI has more than doubled from 13 to 29. The present sales measure more than doubled, while both the components for expected sales for the next six months and traffic of prospective buyers rose.
The survey results suggest buyers are returning to the 55+ housing market as home prices begin to improve, helping to unlock some of the pent-up demand from 55+ consumers. Additionally, the 55+ multifamily rental indices recovered substantially last year, and are now holding steady.
While single-family starts were down in July, multifamily construction continues to expand. Housing starts of units in buildings with five or more apartments came in at 229,000 seasonally adjusted annual rate, up 9.6% from the revised figure for June. The three-month moving average has been very stable, hovering between 205,000 and 210,000 for the past quarter. On a year-over-year basis, housing starts for 5+ units are up strongly, 30% since July of 2011.
Existing home sales increased 2.3% from June, and are up 10.4% from the same period a year ago. The National Association of Realtors reported July 2012 total existing home sales were at a seasonally adjusted rate of 4.47 million combined for single-family homes, townhomes, condominiums and co-ops. That compares to 4.05 million units from the same period a year ago.
The total housing inventory at the end of July increased 1.3% from the previous month to 2.4 million existing homes for sale. At the current sales rate, the July 2012 inventory represents a 6.4-month supply which is down from a 6.5-month supply in June, and very much improved from the 9.3-month supply of homes a year ago.
Supporting economic conditions for housing continue to be mixed however, offering both good and bad news. For example, the NAHB/Wells Fargo Housing Opportunity Index (HOI) fell slightly in the second quarter of 2012, down to 73.8, from the all-time record high of 77.5 recorded in the first quarter of the year. Firming home prices in most metro areas – in general, a good thing for the economy– contributed to the small decline in affordability. 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 73.8 means that 73.8% of all homes sold during the second quarter were affordable to families earning national median income ($65,000).
The Mortgage Bankers Association’s National Delinquency Survey revealed a surprising increase in the seasonally adjusted delinquency rate during the second quarter of 2012. The total share of first-lien residential mortgages with past due payments increased 18 basis points to 7.58%. In addition, all three delinquency buckets registered increases compared to the first quarter, with the largest quarter-to-quarter jump occurring among loans 90+ days past due (3.06% up to 3.19%).
Foreclosure starts were unchanged or lower compared to the first quarter of 2012 in 31 states, but a handful of states registered very large quarter-to-quarter increases in foreclosure actions. In total, five states (Florida, California, Illinois, New York and New Jersey) account for just above half of the nation’s foreclosure inventory, but represent less than 32% of all serviced loans in the U.S.
Inflation remains in check. The Bureau of Labor Statistics reported thatthe Consumer Price Index for All Urban Consumers (CPI-U) held steady in July. Overall, the CPI-U has remained either unchanged or declined in each of the last four months. Energy prices slipped 0.3% in July, putting more downward pressure on topline CPI. The next couple months of readings on overall CPI will likely be stronger, however, as gasoline and natural gas prices have surged in recent weeks.
The shelter index, which serves as a rough measure of overall housing costs, rose for the 28th consecutive month; however, each of those increases have been modest (including the 0.1% gain in June), leaving the shelter index only 2.1% above its year-ago level. To more closely assess trends in rental housing costs, NAHB constructs a real rent index from the CPI for rent of primary residences and overall CPI. This metric has registered four consecutive month-to-month increases, with the latest gain coming in at 3.3% on an annualized basis.
Finally, NAHB economists examined issues related to the age of the housing stock, and its implications for future demand for both remodeling and new home construction. One analysis took a look at the quality of insulation, as reported by households. The survey findings indicate that overall, nearly 39% of occupants of single-family homes consider their homes well insulated. Households reporting the highest level of satisfaction with the insulation of their homes were those who occupied homes built after 2004, for whom 67% reported that their home was well insulated.
Related to these research findings, another analysis examined the geographic distribution of the median age of the housing stock.For the typical housing unit, the oldest homes are found in the Northeast. With the exception of the District of Columbia, the state with the highest median age is New York, at 57 years. Rhode Island is next at 56. The newest housing is present in the southern parts of the nation, where population growth has been the highest in recent decades.