The housing market story we told a month ago continued this month. Construction of new homes fell again in August, albeit modestly by 0.8% to an annual rate of 1.18 million. Also repeating last month’s performance, the decline was driven by a sharp 6.5% drop in the multifamily sector, however, that was somewhat compensated for by a 1.6% gain in the construction of single-family units.
The August increase in single-family home construction brought this segment to an annual rate of 851,000 units. But construction of single-family homes has remained within the same range for nearly a year; that is, within a monthly rate of 800,000 and 875,000 units, as can be seen in the chart below.
For those of our members who participate in this market segment, this simply means that their businesses should remain stable and constant. Any growth they attain may be the result of moving consumers to higher price points or gaining market share at the expense of competitors.
Curiously, note that fewer housing permits than starts have been issued virtually every month over the last year; the notable exception is December 2016, when permits exceeded starts by about 26,000 units. This suggests that perhaps the housing starts data, estimated via a survey of builders who obtained permits, may not be entirely accurate.
On the multifamily side, the picture is completely different. Rather than stability, we see a declining trend in multifamily starts (the blue line) ending in last month’s annual rate of 329,000 units. August’s level of construction is more than 28% lower than the peak level last seen in December 2016, when multifamily starts were running at an annual rate of 460,000 units.
Moreover, contrasting the starts-to-permits relationship we saw in the single-family sector, multifamily permits have exceeded starts virtually for a full year.
Along with stagnant housing construction, the National Association of Realtors last week released data on sales of existing homes for August. They fell for the third consecutive month by 1.7%, to an annual rate of 5.35 million.
The NAR attributes the slow pace of home sales to a low inventory of homes on the market. This inventory figure stands at 1.88 million houses, 6.5% below what it was a year ago. Also, the inventory represents 4.2 months of sales at the current sales rate. This is also down slightly from 4.5 months, a year ago.
Additionally, although concentrated in a small geographic area, Hurricane Harvey impacted closings on sales in the Southern region, particularly, of course, in the Houston area. Until July, the Houston metropolitan area led the nation with 24,497 housing permits issued; the area accounted for nearly 6% of single-family permits issued in the U.S. this year. But, naturally, we should expect that this area will see slower-than-usual sales activity in the next few months.
Mortgage rates inched up last week for the first time in two months, rising five basis points, or 0.05%, to 3.83%. Although it’s premature to state that this indicates a period of rising rates, Federal Reserve chair Janet Yellen signaled that they might begin to tighten.
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 may be changing direction; “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. This 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 higher. 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 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.
