Existing Home Sales Rebound
Last week’s report revealed a three-month decline in sales of new homes in the month of February. This week’s report showed its complement — sales of existing homes — moved in the opposite direction and rose 3% to an annual rate of 5.54 million homes. This is a welcome move after the previous two months, in which sales declined.
However, as seen in the chart above, the February sales rate was virtually the same as a year before, when they came in at a 5.48 million units (annualized). Additionally, the 12-month average ended in February of this year is exactly halfway between those two points: 5.52 million units.
Further, the national sales gain was not broad. Only two of the four regions saw an improvement in home sales — the South, which increased nearly 7% to an annual rate of 2.4 million units, and the West, with an 11% improvement to 1.27 million units. Note that these two regions account for two-thirds of the home sales activity in the nation.
The National Association of Realtors, which compiles and issues this data, states that the industry is plagued by low inventory levels of existing homes. This is what is hindering greater volume and forcing many households to remain in their current homes even though they may wish to move.
And, naturally, like any other market faced with low inventory and strong demand, prices of existing homes are rising faster. The average price of an existing home increased nearly 6% over the last year, to an average of $243,000.
The rise in house prices has impacted affordability, but only marginally. Although the index rose in January to 163.0, it’s virtually at the same level it was four years ago. Thus, affordability is not an issue of great concern yet.
Where Are New Houses Being Built?
The state of Texas continues to lead the nation with most single-family homes built in a year. One in seven homes (14%) built in the U.S. last year were in Texas, totaling 114,000 units. Moreover, 75% of those Texas houses were clustered in just three metropolitan areas: Houston, Dallas and Austin.
Second in volume of new home construction was Florida, contributing one in 10 homes in the nation. Single-family permits issued in Florida last year totaled 83,900. And similar to Texas, most of the housing construction is concentrated in a few metro areas. For Florida, four metropolitan areas account for 52% of the new houses (Orlando, Tampa-St. Petersburg, Jacksonville and Miami-Ft. Lauderdale).
Map of Single Family Permits Issued in 2017 – Number of Houses
Third is California, with 7% of the nation’s housing permits, or slightly over 58,000 single-family homes. Construction activity is heavily concentrated in four metro areas, which account for 56% of the permits issued: Los Angeles-Long Beach (10,600 homes); Riverside-San Bernardino (10,000 homes); Sacramento metro area (6,800 units), and San Francisco-Oakland metro area (4,800 homes).
Note that the map and data referenced above reflect single-family housing activity. Multifamily construction activity will be released next week, and is expected to paint a different picture.
Mortgage Rates Unexpectedly Dip
At its meeting last month, the Federal Reserve voted to increase the Federal funds rate by half a point to a range of 1.50 – 1.75%. In contrast, mortgage rates remained virtually unchanged last week, dropping just one-hundredth of a percent to 4.44%. The normal expectation is that they would increase with the prevailing Fed policy, and they very well might over the next few weeks.
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 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.
