A Robust Fourth Quarter
While solid data on the economy’s performance for the current quarter is not yet available, most indicators suggest that it will be as strong as the preceding two. For instance, fourth-quarter GDP growth is expected to match or exceed the 3-plus percentage rate attained in the second and third quarters of 2017.
Another indicator of solid performance: both housing starts and home sales set post-recession records. Single family starts rose 5.3% in November to reach an annual rate of 930,000 units. This increase came on top of a 6.1% gain in October. The last time there was such a strong gain was October 2007, more than a decade ago.
For the year as whole, it looks like 2017 will generate about 850,000 starts (note that the 930,000 figure in the chart above for November’s sales data is annualized). Nonetheless, the 850,000 starts will be more than 8% above the 2016 volume of 782,000 units.
Similarly, sales of new homes reached a post-recession record last month. The rate of sales jumped 18% in November to an annual rate of 733,000 units.
An alternative to purchasing a new home is the purchase of an existing home, and vice-versa. Thus, we see a similar response in sales of existing homes, although at a smaller magnitude.
Sales of existing homes rose nearly 6% in November, to 5.8 million units at an annualized rate. This is the third consecutive month of sales increases, despite what appeared to be a tight inventory of existing homes.
Along with increased home sales, there has been a shift toward higher-priced homes. Additionally, according to the National Association of Realtors, the proportion of homes purchased on a cash basis rose to 22% in November, slightly higher than the 21% who paid cash for their homes last year.
The high levels of home sales are driving prices of homes. For November, the median price of an existing home was 5.8% higher than the same month last year, clocking at $248,000.
As previously reported, this higher rate of sales portends stronger potential business for the kitchen and bath industry, and remodeling in general. Many consumers who purchase either an existing or a new home are likely to engage in remodeling activities within the first two years of the purchase. Naturally, this suggests extra business for companies in the residential construction industry.
Mortgage Rates Remain Virtually Unchanged
The mortgage rate remained stable, edging up by just one basis point last week (0.01%). In fact, as indicated in the chart below, the rate has remained within the same narrow band for the last two months. It is neither boosting nor discouraging borrowing for a home purchase or remodeling.
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.
