Overall Housing Starts Rise

Despite weakness in the single-family housing sector, where starts declined 3.7% to an annual rate of 867,000 units, total housing starts rose nearly 2 percent in March to 1.32 million units (annualized). The increase was driven by strength in multifamily housing construction, which jumped 14.4% to reach a rate of 452,000 units.

Compared to a year ago, single-family construction is running 5 percent higher; in March 2017, single-family starts stood at a rate of 824,000 units, or 43,000 fewer homes. And the ever-volatile multifamily sector rose by nearly 24% from last year’s annual rate of 365,000 units.

For the first quarter of this year, multifamily construction is running 20% higher than all of 2017. Yet the vacancy rate for rental units has not changed appreciably, suggesting that steady vacancies, i.e. lack of rental units, is driving the need to build more units.

Regionally, housing starts inched up in the Northeast (+0.8%) and spiked in the Midwest (+22%), while the other two regions experienced modest declines. The South was down less than1% and the West was under 2%. However, the latter two regions account for three-quarters of the nation’s housing starts.

 

Sales of Building Materials Ebb

The month of March showed a small decline in sales of building materials, down by less than 1 percent (0.6%) to $32.6 billion. But despite this nearly $200 million decline in volume, the month’s sales were within the range they have maintained for the last six months.

So far, for the first quarter of this year, sales of building materials are 5.4% ahead of last year’s first quarter. Note that they exceed all other retail sales categories except gas stations and non-store, both of which grew 10% or more. The non-store category includes both electronic/online sales as well as mail-order. And sales at gas stations tend to be volatile, depending on the price of oil in world markets.

Mortgage Rates Jumped Last Week

Not surprisingly, the average 30-year fixed mortgage rate increased by 5 basis points to 4.47% last week. This is the highest level we’ve seen in more than four years, and it might begin to put a damper on the housing market.

However, there are other factors that could compensate for the rise in mortgage rates. One of them is the increase in the number of employed people. The higher the employment rate, the more likely that consumers will be able to move to separate quarters (e.g., a young person moving out of his or her parents’ home), or to move to a different house.

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.