Economic Indicators: 8/24/17

Housing starts in July registered at an annual rate that was 4.8% lower than the prior month. But this drop was concentrated mostly in the multifamily sector, which fell by 15% to an annual rate of 299,000; single-family starts remained virtually the same, just 0.5 % lower than June’s level.

Housing Starts

Construction of single-family homes has remained in the 800,000-to-850,000-unit annual rate since September 2016, except for some sharp fluctuations in a few of the months. This can be seen in the chart below, which also shows single-family housing permits.

Single Family Housing Starts

This suggests that we should not expect significant growth for our businesses emanating from the construction of new single-family homes.

But in contrast, construction of multifamily housing units has been clearly slowing down since the beginning of the year. In fact, they have dropped virtually every month since December; the only notable exception was in June, which saw a modest jump in activity. Curiously, permits for the construction of multifamily units have remained relatively strong, at an average annual rate of 430,000 this year, and are showing no signs of decline.

Multi Family Housing Starts

This means either that builders have miscalculated and their plans have not materialized, or they expect demand for multifamily units to rebound in the future and expect to use those permits to build new housing units.

In other news: last week, mortgage rates dropped again, although by a minimal one basis point (i.e., 0.01 percent), to 3.89%. Such a change should not impact the markets, although the fact that rates have not increased should work in favor of home purchases.

Weekly Mortgage Rate

Undoubtedly the stability in mortgage rates is due to the Fed’s stance on monetary policy. At its last meeting, the Fed’s Federal Open Market Committee decided to maintain its current policy. At this point, it looks like the Fed will not make any dramatic changes over the next few months, thus we should expect more of the same in the housing markets.

Manuel Gutierrez, Consulting Economist to NKBA

Explanation of NKBA’s Economic Indicators Dashboard

The dashboard displays the latest value of each economic indicator with a colored triangle that highlights visually the recent trend for each of the drivers. “Green” is a positive signal indicating that the latest value is improving; “Yellow,” as it’s commonly understood denotes caution because the variable might be changing direction; and “Red” indicates that the variable in question is declining, both in its current value and in relation to the recent past.

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 are 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 the 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 includes 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, for instance.

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.