Housing & Construction February 2017

HOUSING STARTS RISE 11.3%

Housing starts rose 11.3% in December to a seasonally adjusted annual rate of 1.23 million units after falling to an upwardly revised 1.10 million units in November. Single-family starts fell 4.0% to a seasonally adjusted annual rate of 795,000 units after falling to 828,000 units in November. Multifamily starts jumped 57% to 431,000 units in December after plunging to 262,000 units in November. Regional starts were mixed. Starts rose 31.2% in the Midwest, 23.5% in the West and 18.5% in the Northeast. Starts dropped 1.4% in the South. NAHB expects this to be another year of gradual, steady improvement. Multifamily starts have been very volatile, but are expected to level off as supply meets demand. Single-family production continues to grow but is limited by labor shortages and land availability problems on the supply side. Wells Fargo projects starts of 1.17 million in 2017 and 1.22 million in 2018. NAHB expects single-family production to grow 10% this year.
 
BUILDING PERMITS FALL 0.2%

Building permits fell 0.2% in December to a seasonally adjusted annual rate of 1.21 million units after falling to 1.20 million in November. Single-family permits rose 4.7% to 817,000 units and multifamily permits fell 9% to 393,000 units. Regional permit issuance was mixed. Permits rose 3.3% in the West, 2.7% in the Northeast and 0.5% in the Midwest. Permits fell 2.9% in the South.  Permits have been above the one million level for eighteen consecutive months, the longest stretch in seven years.
 
NEW-HOME SALES FALL 10.4%
 
Sales of new single-family homes fell 10.4% in December to a seasonally adjusted annual rate of 563,000 units after rising to 592,000 units in November.  Annual sales were up 12.2% for all of 2016, and were at the highest annual rate since 2007. The inventory of new homes for sale rose to 259,000 in December after rising to 250,000 in November and were at a 5.8-month supply at the current sales pace, up from a 5.1-month supply in November. Regional sales were mixed. Sales jumped 48.4% in the Northeast, but fell 41% in the Midwest, 12.6% in the South and 1.3% in the West. NAHB expects new home sales to grow 10% this year, fueled by a growing economy and solid job growth, as long as home prices remain attractive and prospective first-time buyers have access to affordable home loans. Sales of new homes are tabulated when contracts are signed and are considered a more timely barometer of the housing market than purchases of previously-owned homes, which are calculated when a contract closes.
 
EXISTING HOME SALES FALL 2.8%

Existing home sales fell 2.8% in December to a seasonally adjusted annual rate of 5.49 million from an upwardly revised 5.65 million in November. Sales were up 0.7% from December 2015. It was the best year for existing home sales in a decade. Total housing inventory at the end of December dropped 10.8% to 1.65 million existing homes available for sale, 6.3% lower than in December 2015 and a 3.6-month supply at the current sales pace, down from 6.3% in December 2015 and the lowest level of inventory since NAR began tracking the supply of all housing types in 1999. Tight housing supply is impacting affordability and driving up rents as well. Inventory has fallen year-over-year for 19 consecutive months. Regional sales were mixed. Sales fell 6.2% in the Northeast, 3.8% in the Midwest and 4.8% in the West. Existing home sales in the South were unchanged. 
 
BUILDER CONFIDENCE FALLS TO 67

Builder confidence fell two points to 67 in December after jumping seven points to a downwardly revised 69 in November, according to the HMI (National Association of Home Builders/Wells Fargo Housing Market Index). All three HMI components fell in December, with current sales conditions dropping three points to 72, sales expectations for the next six months falling two points to 76 and buyer traffic dropping one point to 51. The three-month moving averages for HMI scores rose two points in the Northeast to 52 and three points in the Midwest to 64. The South and West each held steady at 67 and 79, respectively. It was the twentieth consecutive month the HMI remained above 50. Builders remain optimistic that a new Congress and administration will help create a better climate for small businesses and streamline and reform the regulatory process.
 
REMODELING MARKET OPTIMISM DROPS

NAHB’s Remodeling Market Index (RMI) dropped four points to 53 in the fourth quarter of 2016, down from the third quarter but on par with first half readings. Remodeler confidence has remained positive for 15 consecutive quarters. An RMI above 50 indicates that more remodelers report that market activity has increased from the prior quarter than report it has decreased. Among the index’s components, major additions and alterations dropped one point to 53, demand for smaller remodeling projects dropped four points to 52 and home maintenance and repairs dropped five points to 54. The index measuring future market indicators fell six points to 52. Among its four components, calls for bids and appointments for proposals fell to 49 and 54, respectively, the backlog of jobs dropped three points to 55 and the amount of work committed fell five points to 50. NAHB expects remodeling activity to continue to grow over the next two years but at a more moderate annual rate of 1% to 2%.
 
MORTGAGE RATES FALL TO 4.19%

The 30-year mortgage rate fell to 4.19% at the end of January after rising to 4.32% at the end of December. In January last year 30-year rates averaged 3.79%. Freddie Mac believes that the housing market will stall a bit in the first quarter but then resume upward momentum as markets absorb the shock of rising mortgage rates.
 
PRESIDENT ELIMINATES PLANNED FHA MORTGAGE RATE CUT

In one of his first executive actions, President Trump eliminated a planned rate cut to FHA mortgage loan insurance premiums that would have largely benefited lower-and middle-income and first-time buyers by providing savings of up to $1,000 or more annually. NAHB, NAR and other industry players say that the action will mean higher costs for between 750,000 and 850,000 home buyers, and will shut 30,000 to 40,000 new home buyers out of the market. An estimated 40% of millennial buyers use the FHA program, and the action will make it harder for them to buy as well as harder for owners looking to sell their homes and move up.
 
MULTIFAMILY EXPECTS STRONG YEAR 

The multifamily sector's operating performance beat expectations in 2016 with high sales volume and strong per-unit sale prices. Analysts expect some moderation this year but also note that the fundamentals that delivered a robust 2016 performance are still in place. Several economic and demographic factors are driving demand, according to Freddie Mac. Renter households are expected to grow in every generational segment. Positive job growth and a stable economy should help more millennials form households and enter the market. The combination of sluggish income growth, rising home prices and higher mortgage rates will probably delay homebuying by many members of Generation X and keep them renting longer. Meanwhile, a portion of the 67 million aging baby boomers are planning to downsize into more easily managed rental units.

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