HOUSING STARTS DROP 2.6%
Housing starts dropped 2.6% in April to a seasonally adjusted annual rate of 1.17 million units after falling to 1.22 million units in March. Single-family starts rose a scant 0.4% to 835,000 units after dropping to 821,000 units in March. Multifamily starts fell 9.2% to an annual rate of 337,000 units after dropping to 394,000 units in March. Regional starts were mixed. Starts rose 19.4% in the Midwest and 9.1% in the West. Starts fell 3.4% in the South and 29.2% in the Northeast. Despite the decline, housing starts are up 5.3% from April 2016 and single-family starts are up 7.0%.
BUILDING PERMITS FALL 2.5%
Building permits fell 2.5% in April to a seasonally adjusted annual rate of 1.23 million units after rising to 1.26 million units in March. Single-family permits fell 6.2% to 789,000 units. Multifamily permits rose 1.4% to 440,000 units. Regional permit issuance was mixed. Permits rose 8.7% in the West and 1.0% in the Midwest. Permits fell 7.4% in the South and 10.3% in the Northeast.
NEW-HOME SALES FALL 11.4%
Sales of newly built, single-family homes fell 11.4% in April to a seasonally adjusted annual rate of 569,000 units. Sales were up more than 11% from April 2016. It was the first decline in new-home sales this year. However, sales for the first three months of the year were all revised up, and the pace in March was the highest since October 2007. The inventory of new homes for sale remained at 268,000 in April, which is a 5.7-month supply at the current sales pace. Wells Fargo noted that much of the inventory was in homes where construction has not yet begun; there are just 59,000 completed new homes available for sale. Sales declined in all regions. New home sales fell 4.0% in the South, 7.5% in the Northeast, 13.1% in the Midwest and 26.3% in the West. NAHB commented that despite the slowdown in April their forecast calls for new home sales to increase throughout the year, due to rising household formations, continued job growth and tight existing home inventory. 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 2.3%
Existing home sales fell 2.3% in April to a seasonally adjusted annual rate of 5.57 million after rising to a downwardly revised 5.70 million in March. Single-family home sales dropped 2.4% to a seasonally adjusted annual rate of 4.95 million in April, 1.6% above the pace a year ago. Total housing inventory at the end of April rose 7.2% to 1.93 million existing homes available for sale, but was still 9.0% below April 2016 and has fallen year-over-year for 23 consecutive months. Unsold inventory was at a 4.2-month supply at the current sales pace, down from 4.6 months in April 2016. Regional sales were mixed. Sales fell 2.7% in the Northeast, 5.0% in the South and 3.3% in the West. Sales rose 3.8% in the Midwest. Realtors note that homes in the lower-and mid-market price ranges are hard to find in most markets, and many are selling quickly for over ask, leading to further inventory shortages.
BUILDER CONFIDENCE RISES TO 70
Builder confidence rose two points in May to 70, according to the HMI (National Association of Home Builders/Wells Fargo Housing Market Index). Two of the three HMI components registered gains in May. The index for sales expectations in the next six months jumped four points to 79 and the index gauging current sales condition increased two points to 76. The component measuring buyer traffic dropped one point to 51. The three-month moving average for HMI scores rose in three out of four regions. The Northeast and South each rose three points, to 49 and 71, respectively. The West rose one point to 78. The Midwest was unchanged at 68. It was the second-highest reading for the HMI since 2008. Builders remain optimistic but face ongoing increases in building materials prices, hefty regulatory costs and shortages of both lots and labor, according to the NAHB.
MORTGAGE RATES FALL TO 3.95%
The 30-year mortgage rate fell 3.95% at the end of May after falling to 4.03% at the end of April. The drop to the lowest rate of the year was in response to a sharp drop in Treasury yields. In May last year 30-year rates averaged 3.64%. Mortgage rates have been a bit volatile of late, swinging along with yields on the 10-Year Treasury Bond.
LONG-RANGE HOUSING OUTLOOK
Wells Fargo remains cautious about the housing outlook. While they expect conditions to improve over the coming year and look for a relatively strong year for new and existing home sales, they still believe a return to the conditions that existed in the decades prior to the housing boom remains a long way off. They expect new home sales to rise 12.3% this year to 630,000 units and housing starts to rise 7.3% to 1.26 million units. Wells Fargo says that despite the expected gains in sales and new home construction, their housing forecast remains slightly below consensus forecasts. They believe that the barriers to a stronger recovery are formidable, and that housing demand is being held back by long-running demographic influences, tight credit conditions and a host of supply constraints. While conditions are expected to improve somewhat, they do not believe housing starts will return to the pre-recession norm of 1.7 million units per year. They believe the new norm will be in the range of 1.6 million units, which we might reach by the end of the decade.
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