Housing Starts Remain Stable
Continuing on the last few months’ pattern, single-family housing starts remained virtually unchanged in April at an annual rate of 894,000 units, a negligible 0.1% rise above March’s revised figure.
Over the last six months, the rate of single-family housing starts averaged 894,000 units, the same as recorded in April. That is, the single-family market has remained stable — “moving sideways,” as is commonly said — neither trending up nor down for a while.
Despite the favorable employment growth data — the economy has generated 2.3 million new jobs over the last 12 months — new housing development has been stymied by low or nearly stagnant wage growth and, perhaps, supply restrictions imposed by the low availability of workers in the construction industry. However, the situation should improve as more consumers continue to see improvements in their financial conditions emanating from the tax reform bill released last year.
In contrast to the modest gain in single-family starts, construction of multifamily housing units fell 11.3% in April, to an annual rate of 393,000 units. While this appears to be a sizable drop, it is not unusual for multifamily construction to rise or fall sharply in a given month.
Also, it should be noted that multifamily construction is running at an annual rate of 419,000 units for the first four months of this year — more than 10% above last year’s rate for the same period. In fact, for the full year, 354,000 multifamily housing units were started in 2017.
Building Materials Sales Inch Up
Sales of building materials, another indicator of the health of the construction industry, moved up modestly in April by 0.4%, to $32.5 billion. Sales through April are 5% higher than they were a year ago. However, this obscures the fact that sales have remained at the same level over the last six months: between October 2017 and March 2018, monthly sales have averaged $32.5 billion, the same volume attained in April.
Overall Consumer Sentiment Steady
The index of consumer sentiment issued by the University of Michigan remained unchanged this month (based on preliminary data) at 98.8. This would seem to suggest that consumers’ views have not changed over the last month.
However, as the table below shows, this is not the case. The two major components of the index moved — but in opposite directions. While the current financial conditions index declined to 113.3, a loss of 1.6 points from April, expectations for the next six months have improved, albeit by just 1.1 points to 89.5.
Mortgage Rate Increases Resume
As expected, the 30-year fixed mortgage rate rose by six basis points (0.06%) to 4.61% last week. This is the highest level in six years, the last time we saw a 4.61% rate was back in early May 2011.
And it’s very likely that the spike recorded in the first quarter, when rates rose nearly half a percentage point in three months, will be repeated over the next few months. The days of extremely low rates will be seen as a thing of the past.
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.
