Although last week’s release of October housing starts at 1.29 million units (annual rate) was prominently touted in the news as the highest in a year, the gain was primarily due to a 39% jump in the highly volatile multifamily sector. The single-family sector, which is much more important to many of our members’ businesses, increased more modestly by 5.3% to an annual rate of 877,000 units.
Nevertheless, as seen in the slowly rising dotted red line in the chart above, which reflects a moving average since October 2016, single-family starts display a slightly positive trend. With two months to wrap up the year, it looks like 2017 single family starts will be about 8 to 9% above last year’s 782,000 houses.
On the multifamily side, the picture is not as rosy, despite the 39% jump cited above. Multifamily units started at an annual rate of 413,000 units in October, nearly 10% below October 2016, when they were built at a rate of 460,000 units.
But New Homes Are Getting Smaller
Also last week, the Department of Commerce released estimates on the size of new homes completed in the third quarter. The average size of new single-family houses fell to 2,598 square feet. Although this is a nearly negligible 0.1% drop from the previous quarter, house size has been falling more or less steadily over the last two years.
This pattern reverses the trend of increasing house size, which has been happening for the last 30 years. But a reduction in house size should be no surprise, considering that there are more people living alone, and that the number of people per household is also falling.
Retail Sales
Sales of building materials pulled back in October to $32.1 billion, a 1.2% drop from the prior month.
But the chart below suggests that this decline is only temporary, and not necessarily a reversal of the last 12 months’ trend. In fact, both residential and non-residential construction is projected to increase further in 2018. This should lead to higher demand for building products.
Consumer Prices Moderate Slightly
Over the 12 months ending in October, consumer prices are 2% higher. This is slightly lower than the 2.2% posted the prior month, but it’s still above the 1.9% seen in the preceding five months.
From a government policy vantage, it’s also useful to view trends in consumer prices excluding such highly-volatile items as food and energy. This is shown by the red line in the chart above, which indicates prices are 1.8% over a year ago. More importantly, excluding food and energy, prices have remained at roughly this level over the last six months.
But from a practical business point, the critical figure is the overall consumer price index — what consumers face at retail on a day-to-day basis.
Mortgage Rates Move Up Slightly
After a temporary drop the previous week, mortgage rates continued on their slow but steady rising trend. Last week, the average rate reached 3.95%, just five basis points from the prior week but the highest in four months.
Even though the Federal Reserve Board has not increased rates appreciably, its policy of apparent tightening is continuing to put pressure on mortgage rates. However, the increases are not sufficiently high enough to dampen housing or remodeling activity significantly.
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.
