Existing Home Sales Fall to Two-Year Low


As elevated mortgage rates and higher home prices weighed on housing affordability, existing home sales declined for six consecutive months, according to the National Association of Realtors (NAR). All four regions saw double-digit decline in sales from a year ago. But home price appreciation has slowed as inventory increased. The median existing home prices in July was down $10,000 from last month’s record high of $413,800. Total existing home sales, including single-family homes, townhomes, condominiums and co-ops, fell 5.9% to a seasonally adjusted annual rate of 4.81 million in July, the lowest level since May 2020. Sales have decreased 26.3% this year. On a year-over-year basis, sales were 20.2% lower than a year ago. The first-time buyer share fell to 29% in July, down from 30% both in June and a year ago. The July inventory level increased from 1.25 to 1.31 million units but was unchanged from a year ago. At the current sales rate, July unsold inventory sits at a 3.3-month supply, up from 2.9-months last month and 2.6-months a year ago. Homes stayed on the market for an average of just 14 days in July, the same as in June and down from 17 days in July 2021. This is the lowest number since NAR began tracking in May 2011. In July, 82% of homes sold were on the market for less than a month. The July all-cash sales share was 24% of transactions, down from 25% last month but up from 23% a year ago. The July median sales price of all existing homes was $403,800, up 10.8% from a year ago, representing the 125th consecutive month of year-over-year increases, the longest-running streak on record. The median existing condominium/co-op price of $345,000 in July was up 9.9% from a year ago. Geographically, all four regions saw a decline in existing home sales in July, ranging from 3.3% in the Midwest to 9.4% in the West. On a year-over-year basis, sales also decreased in all major regions, ranging from 14.4% in the Midwest to 30.4% in the West. Meanwhile, the Pending Home Sales Index (PHSI) is a forward-looking indicator based on signed contracts. The PHSI fell 8.6% from 99.6 to 91.0 in June. On a year-over-year basis, sales were 20.0% lower than a year ago per the NAR data. Related ‹ Multifamily Sector Shows Signs of Caution in the Second QuarterTags: Existing Home Sales, inventory, mortgage rates, NAR

Existing Home Sales Fall to Two-Year Low2022-08-18T13:19:29-05:00

Flat Conditions for Custom Home Building


By Robert Dietz on August 18, 2022 • NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates custom home building registered relatively flat conditions for the second quarter of 2022. There were 53,000 total custom building starts during the second quarter of the year. This marks a 2% decline compared to the first quarter of 2021. Over the last four quarters, custom housing starts totaled 204,000 units, a 9% gain from the prior four-quarter total. After market share declines due to a rise in spec building, post-covid the market share for custom homes has increased slightly. As measured on a one-year moving average, the market share of custom home building, in terms of total single-family starts, was flat at 18%. This is down from a cycle high of 31.5% set during the second quarter of 2009. Note that this definition of custom home building does not include homes intended for sale, so the analysis in this post uses a narrow definition of the sector. It represents home construction undertaken on a contract basis for which the builder does not hold tax basis in the structure during construction. Related ‹ Townhouse Construction SlowsTags: custom, custom building, economics, home building, housing, single-family

Flat Conditions for Custom Home Building2022-08-18T08:26:23-05:00

Townhouse Construction Slows


By Robert Dietz on August 17, 2022 • According to NAHB analysis of the most recent Census data of Starts and Completions by Purpose and Design, during the second quarter of 2022 single-family attached starts totaled 38,000, which is 9.5% lower than the second quarter of 2021. Nonetheless, over the last four quarters, townhouse construction starts totaled 148,000 units, 7% higher than the prior four quarter total (138,000). However, these totals will slow in the quarters ahead as the overall building market slows. Using a one-year moving average, the market share of newly-built townhouses decreased to 12.5% of all single-family starts. This represents a slight weakening of market share after recent gains for medium-density housing demand. The peak market share of the last two decades for townhouse construction was set during the first quarter of 2008, when the percentage reached 14.6%, on a one-year moving average basis, of total single-family construction. This high point was set after a fairly consistent increase in the share beginning in the early 1990s. The long-run prospects for townhouse construction remain positive given growing numbers of homebuyers looking for medium-density residential neighborhoods, such as urban villages that offer walkable environments and other amenities. This will be particularly true for prospective first-time buyers in high cost metro areas. Related ‹ Single-Family Built-for-Rent Construction SurgingTags: economics, home building, housing, single-family, townhouse, townhouses

Townhouse Construction Slows2022-08-17T08:16:05-05:00

Single-Family Built-for-Rent Construction Surging


Single-family built-for-rent sector construction surged during the second quarter of 2022 as homebuying affordability declined on higher mortgage interest rates. According to NAHB’s analysis of data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, there were approximately 21,000 single-family built-for-rent (SFBFR) starts during the second quarter of 2022. This is a 91% gain over the second quarter 2021 total. Over the last four quarters, 69,000 such homes began construction, which is a 60% increase compared to the 43,000 estimated SFBFR starts in the prior four quarters. The SFBFR market is a means to add inventory amid challenges over housing affordability and downpayment requirements in the for-sale market, particularly during a period when a growing number of people want more space and a single-family structure. Single-family built-for-rent construction differs in terms of structural characteristics compared to other newly-built single-family homes, particularly with respect to home size. Given the relatively small size of this market segment, the quarter-to-quarter movements typically are not statistically significant. The current four-quarter moving average of market share (6%) is nonetheless higher than the historical average of 2.7% (1992-2012) and sets a data series high as this submarket expands. Importantly, as measured for this analysis, the estimates noted above only include homes built and held by the builder for rental purposes. The estimates exclude homes that are sold to another party for rental purposes, which NAHB estimates may represent another five percent of single-family starts based on industry surveys. Indeed, the Census data notes an elevated share of single-family homes built as condos (non-fee simple), with this share averaging 4% over recent quarters. Some, but not all, of these homes will be used for rental purposes. Additionally, it is theoretically possible some single-family built-for-rent units are being counted in multifamily starts, as a form of “horizontal multifamily,” given these units are often built on single plat of land. However, spot checks by NAHB with permitting offices indicate no evidence of this data issue occurring at scale thus far. With the onset of the Great Recession and declines in the homeownership rate, the share of built-for-rent homes increased in the years after the recession. While the market share of SFBFR homes is small, it has clearly been trending higher. As more households seek lower density neighborhoods and single-family residences, a growing number will do so from the perspective of renting. This will be particularly true as mortgage interest rates remain elevated and increase. Thus, the SFBFR market will expand in the quarters ahead. Related ‹ Housing Starts Weaken in JulyTags: economics, home building, housing, SFBFR, single family built for rent, single-family

Single-Family Built-for-Rent Construction Surging2022-08-16T10:25:11-05:00

Housing Starts Weaken in July


A sharp decline in single-family home construction is another indicator that the housing slowdown is showing no signs of abating, as rising construction costs, elevated mortgage rates and supply chain disruptions continue to act as a drag on the market. Overall housing starts fell 9.6% to a seasonally adjusted annual rate of 1.45 million units in July, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The July reading of 1.45 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Single-family starts decreased 10.1% to a 916,000 seasonally adjusted annual rate and are down 2.1% on a year-to-date basis. This is the lowest reading for single-family home building since June 2020. More declines lie ahead, as single-family permits decreased 4.3% to a 928,000 unit rate and are down 5.9% on a year-to-date basis. NAHB is forecasting 2022 to be the first year since 2011 to record an annual decline in single-family home building. A housing recession is underway with builder sentiment falling for eight consecutive months, while the pace of single-family home building has declined for the last five months. The decline in single-family starts is reflected in the HMI measure of builder sentiment, as housing demand continues to weaken on higher interest rates while on the supply side builders continue to grapple with higher construction costs. Builders are reporting weakening traffic as housing affordability declines. The multifamily sector, which includes apartment buildings and condos, decreased 8.6% to an annualized 530,000 pace. Multifamily construction remains very strong given solid demand for rental housing. The number of multifamily 5+ units currently under construction is up 24.8% year-over-year. Multifamily development is being supported by a substitution effect, with frustrated or priced out prospective home buyers seeking rental housing. The number of single-family homes permitted but not started construction has likely peaked after rising over pervious quarters due to supply-chain issues. In July, there were 146,000 homes authorized but not started construction. This reading is flat year-over-year. In contrast, the number of multifamily 5+ units permitted but not started construction continues to rise, up 47% year-over-year to 147,000 units. On a regional and year-to-date basis, combined single-family and multifamily starts are 10.7% higher in the Northeast, 0.4% lower in the Midwest, 6.5% higher in the South and 2.2% lower in the West. Looking at regional permit data on a year-to-date basis, permits are 1.9% lower in the Northeast, 1.9% higher in the Midwest, 2.6% higher in the South and 0.2% higher in the West. As an indicator of the economic impact of housing and as a result of accelerating permits and starts in recent quarters, there are now 816,000 single-family homes under construction. This is 17% higher than a year ago. There are currently 862,000 apartments under construction, up 25% from a year ago with this number continuing to rise. Total housing units now under construction (single-family and multifamily combined) is 21% higher than a year ago. The number of single-family units in the construction pipeline is now falling and will continue to decline in the months ahead given recent declines in buyer traffic. Related ‹ Builder Confidence Falls for Eighth Consecutive MonthTags: economics, home building, housing, multifamily, starts

Housing Starts Weaken in July2022-08-16T09:21:54-05:00

Builder Confidence Falls for Eighth Consecutive Month


Builder confidence fell for the eighth straight month in August as elevated interest rates, ongoing supply chain problems and high home prices continue to exacerbate housing affordability challenges. In another sign that a declining housing market has failed to bottom out, builder confidence in the market for newly built single-family homes fell six points in August to 49, marking the first time since May 2020 that the index fell below the key break-even measure of 50, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). The August buyer traffic number in the builder survey was 32, the lowest level since April 2014 with the exception of the spring of 2020 when the pandemic first hit. Tighter monetary policy from the Federal Reserve and persistently elevated construction costs has brought on a housing recession. The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011. However, as signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months. Roughly one-in-five (19%) home builders in the HMI survey reported reducing prices in the past month to increase sales or limit cancellations. The median price reduction was 5% for those reporting using such incentives. Meanwhile, 69% of builders reported higher interest rates as the reason behind falling housing demand, the top impact cited in the survey. Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. All three HMI components posted declines in August and each fell to their lowest level since May 2020.  Current sales conditions dropped seven points to 57, sales expectations in the next six months declined two points to 47 and traffic of prospective buyers fell five points to 32. Looking at the three-month moving averages for regional HMI scores, the Northeast fell nine points to 56, the Midwest dropped three points to 49, the South fell seven points to 63 and the West posted an 11-point decline to 51. The HMI tables can be found at nahb.org/hmi. Related ‹ Building Materials Prices Increase in July as Concrete SurgesTags: economics, hmi, home building, housing

Builder Confidence Falls for Eighth Consecutive Month2022-08-15T09:18:05-05:00

Credit for Builders Less Available, Costs More


During the second quarter of 2022, credit became both tighter and more costly on loans for Acquisition, Development & Construction (AD&C) according to NAHB’s Survey on AD&C Financing. The average effective rate (based on rate of return to the lender over the assumed life of the loan taking both the contract interest rate and initial fee into account) increased substantially from the prior quarter on all four categories of loans tracked in the AD&C Survey: from 6.32 percent to 8.19 percent on loans for land acquisition, from 7.85 to 9.55 percent on loans for land development, from 7.38 to 8.48 percent on loans for speculative single-family construction, and from 7.90 to 8.63 percent on loans for pre-sold single-family construction. Changes in the effective rate may be due to changes in either the contract interest rate, or  in the initial points charged on the loans.  In the second quarter, average points were unchanged from the previous quarter at 0.63 percent on loans for speculative single-family construction, and actually down slightly on the other three categories of AD&C loans: from 0.90 to 0.86 percent on loans for land acquisition, from 0.95 to 0.90 percent on loans for land development, and from 0.63 to 0.51 percent on loans for pre-sold single-family construction.  However, these relatively small changes were overshadowed by strong surges in the average contract interest rate changed on the loans:  from 4.36 to 6.19 percent on  loans for land acquisition, from 4.60 to 6.27 percent on loans for land development, from 4.63 to 5.39 percent on loans for speculative single-family construction, and from 4.61 to 5.24 percent on loans for pre-sold single-family construction. The NAHB survey also produces a net easing index  that summarizes the change in credit conditions, similar to the net easing index constructed from the Federal Reserve’s survey of senior loan officers (SLOOS).  The second quarter of 2022 was the second consecutive quarter during which both the NAHB and Fed indices were negative, indicating tightening credit conditions.  Moreover, both indices were substantially more negative in the second quarter than they had been  in the first.  In the second quarter, the NAHB net easing index stood at -21.0 while the Fed index was -48.4—compared to -2.30 and -4.7, respectively, in the first quarter of 2022. The most common ways in which the lenders tightened in the second quarter were by increasing the interest rate on the loans (cited by 68 percent of the builders and developers who reported tighter credit conditions), lowering the allowable Loan-to-Value or Loan-to-Cost ratio (65 percent) and reducing amount they are willing to lend (61 percent). The results of the second quarter AD&C survey are consistent with the general tightening of financial conditions and rising interest rates reported in a previous post.   More detail, including a complete history for every question in the survey, is available on NAHB’s AD&C Financing Survey web page. Related ‹ Housing Affordability Falls to Lowest Level Since Great RecessionTags: ad&c lending, ad&c loans, ADC, construciton loans, construction lending, credit conditions, economics, home building, housing, interest rates, lending

Credit for Builders Less Available, Costs More2022-08-11T12:16:12-05:00

Refinancing Activity Down 82% Compared to August 2021


By David Logan on August 10, 2022 • Per the Mortgage Bankers Association’s (MBA) survey through the week ending August 5th, total mortgage activity increased slightly and the average 30-year fixed-rate mortgage (FRM) rate rose four basis points to 5.47%. The FRM rate has declined 35 bps over the past month but remains roughly 2.5 percentage points higher than it was a year ago. The Market Composite Index, a measure of mortgage loan application volume, increased by 0.2% on a seasonally adjusted (SA) basis from one week earlier. Purchasing activity declined 1.4% while refinancing increased 3.5%. Purchase applications are 18.5% below the August 2021 level and have decreased 17 of 31 weeks in 2022, including five of the last six weeks. The refinance activity index has plummeted 82.0% over the past year and has posted a weekly decline in 22 weeks since the start of 2022. The refinance share of mortgage activity increased from 30.8% to 32.0% over the week. Conversely, the adjustable-rate mortgage (ARM) share of activity decreased to 7.4% of total applications, down from 9.5% one month prior. Related ‹ Has Inflation Peaked?Tags: 30-year fixed-rate mortgage, home purchases, interest rates, mba, mortgage bankers association, mortgage finance, mortgages, refinancing, single-family mortgages

Refinancing Activity Down 82% Compared to August 20212022-08-10T15:17:43-05:00

Single-Family Homes Started in 2021


According to NAHB analysis of the Survey of Construction (SOC), new single-family starts expanded at a fast pace in 2021. Nationally, 1,133,145 new single-family units were started in 2021, 14% higher than the units started in 2020. It marked the fastest growth rate since 2013 and the highest count of starts since the Great Recession. Among all the nine Census divisions, the South Atlantic, West South Central and Mountain Divisions led the way with the most new single-family units started in 2021. These three divisions represent 20 states and Washington, D.C., approximately 41% of United States, while the number of new single-family housing starts in these three divisions accounted for more than two thirds of the total new single-family housing starts in 2021. In addition, single-family units started in the Pacific Division increased to 106,240 in 2021, exceeding 100,000 for the second straight year since the 2008 recession. There were 93,693 new single-family units started in the East North Central Division in 2021. While the Pacific Division accounted for 9% of the total new single-family housing starts, the East North Central Division accounted for 8%. The other four divisions, including East South Central, West North Central, Middle Atlantic and New England, accounted for the remaining 16% of the total new single-family housing starts. In 2021, four out of the nine divisions grew faster than the national level of 14%. The Middle Atlantic Division led the way with a 26% increase, followed by the East South Central Division with a 23% increase and the West South Central Division with a 19% increase. The growth rates of the other five divisions were close to or below the national level. Compared to last year, five out of the nine divisions, including Middle Atlantic, East South Central, West South Central, South Atlantic, and West North Central, had an acceleration in 2021. Meanwhile, the Mountain, East North Central, Pacific, and New England Divisions experienced a deceleration in growth in 2021.  Noticeably, the Middle Atlantic Division grew by 26% in 2021, following a decrease of 9% in 2020. Related ‹ June Job Openings and Monetary Policy ConsiderationsTags: annual growth rate, housing starts, nine divisions, single-family

Single-Family Homes Started in 20212022-08-09T09:21:22-05:00

Job Gains Soar in July Amid Recession Fears


Job growth accelerated in July amid higher inflation and growing economic pressures. Total nonfarm payroll employment increased by 528,000, and the unemployment rate edged down to 3.5% in July. Construction industry employment (both residential and non-residential) totaled 7.7 million and has exceeded its February 2020 level. In July, residential construction gained 14,100 jobs, and non-residential construction added 18,300 jobs. Residential construction employment currently exceeds its level in February 2020, while 83% of non-residential construction jobs lost in March and April have now been recovered. Total nonfarm payroll employment increased by 528,000 in July, following a gain of 398,000 in June, as reported in the Employment Situation Summary.  It marks the largest gain since February 2022. The estimates for the previous two months were revised up. The May estimate was revised up by 2,000 from +384,000 to +386,000, while the June increase was revised up by 26,000. With these revisions, employment in May and June together was revised up by 28,000 from the previously reported ones. In the first seven months of 2022, more than 3.3 million jobs were created, and monthly employment growth averaged 471,000 per month. As of July 2022, total nonfarm employment is back to pre-pandemic level in February 2020, meaning U.S. labor market is fully recovered from the COVID-19 pandemic. Meanwhile, the unemployment rate edged down to 3.5% in July from 3.6% in June, returning to the level in February 2020. The labor force participation rate, the proportion of the population either looking for a job or already with a job, ticked down 0.1 percentage point to 62.1% in July. Additionally, according to the Household Survey supplemental data, which come from questions added to the Current Population Survey (CPS) since May 2020, 7.1% of employed persons teleworked or worked at home in the last 4 weeks specifically because of the coronavirus pandemic in July, unchanged from the previous month. In May 2020, 35.4% of employed persons teleworked because of the coronavirus pandemic. Job growth in July was broad-based across sectors, led by gains in leisure and hospitality (+96,000), professional and business services (+89,000), and health care (+70,000). Employment in the overall construction sector increased by 32,000 in July, following a 16,000 gain in June. Residential construction gained 14,100 jobs, while non-residential construction employment gained 18,300 jobs in July. Residential construction employment now stands at 3.2 million in July, broken down as 902,000 builders and 2.3 million residential specialty trade contractors. The 6-month moving average of job gains for residential construction was 11,900 a month. Over the last 12 months, home builders and remodelers added 120,800 jobs on a net basis. Since the low point following the Great Recession, residential construction has gained 1,186,500 positions. In July, the unemployment rate for construction workers rose by 0.4 percentage points to 3.9% on a seasonally adjusted basis. The unemployment rate for construction workers has been trending lower, after reaching 14.2% in April 2020, due to the housing demand impact of the COVID-19 pandemic. Related ‹ Headship Stabilizes During the Pandemic Housing BoomTags: employment, labor force, labor force participation rate, residential construction employment

Job Gains Soar in July Amid Recession Fears2022-08-05T11:15:15-05:00

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