Home sales moved marginally in June. But while existing home sales fell by 1.8% to a 5.52 million unit annual rate, sales of new homes rose less than 1 percent (+0.8%) for a rate of 610,000. In both cases, as can be seen in the chart below, home sales have hovered around the same pace for the last six months, except for some wild monthly fluctuations.
Lack of a substantial inventory of existing homes in many markets prevents consumers from purchasing a home, according to the National Association of Realtors. There are currently 1.96 million homes for sale, 7 percent fewer homes than there were a year ago. Moreover, median home prices of $263,800 are 6.5% higher than a year ago, putting a home out of reach for some households.
On the new-homes front, sales are restrained by challenges that builders are facing. Alongside with rising lumber costs, anecdotal evidence suggests shortages of labor are preventing builders from constructing more homes. Land availability is also mentioned as a deterrent for increased building.
Despite these problems, the levels of home sales activity in the last few years point toward a strong remodeling market in the future, as consumers who have purchased those homes begin to accommodate them to their lifestyle and taste.
But sales of new high-end homes, i.e. those selling for $500,000 or more, are up 15% over last year. A total of 54,000 homes were sold in this price range — 7,000 more than last year — as can be seen in the accompanying chart. Although it should be noted that most of the gain was made in the first quarter, when 6,000 more new homes were sold than last year, compared to the 1,000-unit gain in the second quarter.
More Homeowners
The homeownership rate, that is the percentage of U.S. households who own their home, rose to 63.9% in the second quarter. This marks the fourth consecutive quarter of a rising homeownership rate, after more than a decade of declines.
The homeownership rate peaked in the second quarter of 2004 at 69.4%. In its steady decline over the last decade, it had fallen to 63.1% a year ago, but it has been slowly improving. A rising rate is a key factor to the business of many of our members. Homeowners are more likely to remodel their homes and, in doing so, use the services and products of our members. Typically, those services and products are higher priced than when used for remodeling of rental properties.
The number of households continues to increase; there are today 13.6 million more households than there were back at the turn of the 21st century. In contrast to historical experience, the majority of those households became renters rather than owners. In fact, as seen in the chart below, the number of owner households has increased by just 7% since 2000, compared to the 25% growth in the number of renters.
Yet the expectation is that as the impact of the recession recedes and the economy continues to improve, the number of homeowners will resume its historical pattern of steady growth.
Mortgage rates eased up a little more last week, falling by four basis points to 3.92%. The Fed’s recent posture that they may not implement another increase in the Fed Funds Rate this year may have calmed the financial markets, putting less pressure on all rates.
Low rates will continue to encourage consumers to either purchase a home or engage in remodeling their current residence.
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 $500,000 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.
