Housing & Construction November 2016
HOUSING STARTS FALL 9.0%
Housing starts fell 9.0% in September to a seasonally adjusted annual rate of 1.047 million units after falling to 1.14 million units in August. It was the lowest level for starts since early 2015. Single-family starts rose 8.1% to a seasonally adjusted annual rate of 783,000 units in September after rising to 722,000 units in August. Multifamily starts fell 38.0% to 264,000 units after falling to 420,000 units in August. Regional starts were mixed. Starts fell 36.0% in the Northeast, 14.1% in the Midwest and 5.3% in the South. Starts remained unchanged in the West. Economists expect demand for single-family housing to keep growing. While this year is expected to be a good year for multifamily, analysts believe that last year was most likely the peak for the multifamily sector. More than 300,000 multifamily units were built and entered the market in 2015, the most since 1989.
BUILDING PERMITS RISE 6.3%
Building permits rose 6.3% in September to a seasonally adjusted annual rate of 1.23 million after falling to 1.1 million in August. Single-family permits rose 0.4% to a rate of 739,000 and multifamily permits rose 16.8% to 486,000. Regional permit issuance was mixed. Permits increased 23.6% in the Northeast, 15.8% in the West and 2.6% in the South. Permits fell 5.2% in the Midwest. Permits have been above the one million level for fifteen consecutive months, the longest stretch in seven years.
NEW-HOME SALES RISE 3.1%
Sales of new single-family homes rose 3.1% in September to a seasonally adjusted annual rate of 593,000 units after falling to a downwardly revised number in August. The inventory of new homes for sale remained at 235,000 in September, a 4.8-month supply at the current sales pace, up from a 4.6-month supply in August. Regional sales were mixed. Sales rose 33.3% in the Northeast, 8.6% in the Midwest and 3.4% in the South. Sales fell 4.5% in the West. The new home market is being hamstrung by low levels of inventory; furthermore, much of the inventory in the pipeline is either under construction or not yet started. According to an analysis by Wells Fargo, the actual number of new homes available for sale across the country inched up by 1,000 to 57,000 in September, while 141,000 homes were under construction. 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 RISE 3.2%
Existing home sales rose 3.2% in September to a seasonally adjusted annual rate of 5.47 million after falling to a downwardly revised 5.30 million in August. Sales were up 0.6% from September 2015. The big jump was driven by first-time buyers, who accounted for 34% of existing home sales, the highest percentage in more than four years. Total housing inventory at the end of September rose 1.5% to 2.04 million existing homes available for sale, 6.8% below a year ago. Inventory has now fallen year-over-year for 16 consecutive months. Unsold inventory is at a 4.5-month supply at the current sales pace, down from a 4.6-month supply in August. Sales rose in all regions. Sales were up 5.7% in the Northeast, 3.9% in the Midwest, 0.9% in the South and 5.0% in the West. Low levels of inventory remain very challenging and are helping to keep prices up, reducing affordability. The inventory problem is considered one of the biggest obstacles to a robust housing recovery.
BUILDER CONFIDENCE FALLS TO 63
Builder confidence fell two points to 63 in October after rising to 65 in September. Despite the fall, confidence was at the second-highest level of 2016. Two of the three HMI (National Association of Home Builders/Wells Fargo Housing Market Index) components fell in October. The component gauging current sales conditions dropped two points to 69 and the index charting buyer traffic fell one point to 46. The index measuring sales expectations over the next six months rose one point to 72. The three-month moving average for HMI scores rose in all four regions. The Northeast, Midwest and South each increased one point to 43, 56 and 65, respectively. The West rose two points to 75. It was the nineteenth consecutive month the HMI remained above 50. NAHB says builders continue to express concerns about shortages of lots and labor.
MORTGAGE RATES VIRTUALLY FLAT
The 30-year mortgage rate was 3.47% at the end of October, statistically unchanged from 3.42% at the end of September. In October of last year 30-year rates averaged 3.76%. Rates ticked up slightly mid-month but fell back during the last week. For the first time since 2012 mortgage originations are expected to top $2 trillion in 2016. Near-historic low mortgage interest rates are spurring a burst of refinance activity. Low rates are also supporting strong home sales, which are expected to reach their highest level since 2006. House price growth also remains strong and low levels of inventory across many markets will continue to put upward pressure on house prices for the foreseeable future, according to Freddie Mac. Their forecast calls for a $60 billion, or 11%, increase in third quarter mortgage originations relative to the second quarter, and for total originations to reach $2 trillion in 2016.
REMODELING INDEX RISES
The NAHB’s Remodeling Market Index (RMI) rose four points to 57 in the third quarter. An RMI above 50 indicates that more remodelers report market activity has increased from the previous quarter than report it has fallen. The RMI’s current market conditions rose two points to 56, with all three components rising. Demand for major additions rose two points to 54, demand for smaller remodeling projects rose three points to 56 and demand for repairs rose three points to 59. The future market indicators component rose by five points to 58, indicating optimism in future conditions. Calls for bids and appointments rose six points to 58 and 59, respectively, the backlog of remodeling jobs increased five points to 58 and the amount of work committed rose two points to 55. NAHB says the RMI is consistent with their forecast of gradual and steady improvement in residential remodeling.
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