New Home Sales increased for the second consecutive month in February, rising by 6 percent to a 592,000 unit annual rate. February sales were also 5.5 percent above the average of the previous 12 months. The chart below shows that February sales actually exceeded those of every month in the preceding year except July, when sales peaked at a 622,000 unit annual rate.
Builders seem to be keeping up with the demand for new houses, despite the difficulty in finding skilled workers. The percentage of homes sold but not yet started has declined steadily over the last year. From 2013 through 2015, about 30 to 32 percent of homes sold had not yet been started. But the percentage has declined since the beginning of last year; currently hovering around 28 percent.
The increasing sales rate for new homes, combined with a decline in the percentage of homes not started yet, means that builders are keeping busy and have been able to somewhat expand their workforce. In fact, employment by speculative builders has increased by nearly 18 percent over the last two years.
The inventory of new homes for sale is also rising. In fact, the current inventory of 266,000 new homes is about 10 percent higher than the first quarter of last year.
Sales of existing homes fell by 3.7 percent in February to a 5.48 million annual rate. Despite the decline, February sales were nearly 3 percent above the last two year’s average of 5.34 million units. As seen in the chart below, they are also higher than their level of a year ago.
One of the factors impacting sales of existing homes is low inventory levels. Newly built homes help address this factor; as we saw above new home sales have recently increased.
Affordability is also an issue. Currently the affordability index stands at 162, meaning that affordability is not a pressing issue (the index measures whether a family whose income is equal to the national median income can quality for a mortgage on a typical home). However, the index is lower than it was a year ago, when it was estimated over 170. Rising home prices are pushing the index down, the median price of existing homes in February was nearly 8 percent higher than a year ago.
Mortgage rates eased up a bit last week. The 30-year fixed rate, depicted in the chart below, fell by seven basis points to 4.23. Although the drop would have an imperceptible impact in the residential markets, it is welcome nonetheless. Any factor that makes it easier and more affordable for consumers to purchase a home is always welcome.
But let’s not neglect the impact that low interest rates have had on earnings over the last few years; the period that the Federal Reserve bank has maintained near-zero interest rates. Consumers who relied on interest from savings saw that source of income dry up, forcing them to live with lower income or search for higher return on their savings by taking on more risky assets.
Manuel Gutierrez, Consulting Economist to NKBA
Explanation of NKBA’s Economic Indicators Dashboard
The dashboard displays the latest value of each economic indicator. Note that all the data, except for “mortgage rate” and “appliance store sales” are seasonally adjusted and are represented at annual rates.
Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately-owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.
Single Family Starts. It is the number of single family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.
Existing Home Sales. These data are issued monthly by the National Association of Realtors, and capture the number of existing homes that were sold in the previous month.
High-End Home Sales. This series represents sales of new homes priced at $750,000 and over. The data are released quarterly by the U.S. Department of Commerce, and are not seasonally adjusted. Thus a valid comparison is made to the same quarter of prior year.
Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.
Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.
Building Materials Sales. These data, released monthly by the Department of Commerce, capture the total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also include sales to projects other than residential houses.
Appliance Store Sales. This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as Home Centers.
We hope that you find this dashboard useful as a general guide to the state of our industry. Please contact us if you would like to see further detail.
