New Home Sales Increase
While sales of existing homes fell in May, sales of new homes increased in the month by a robust 4.1% to an annual rate of 689,000 units — up 14% from a year ago.
Unlike the existing homes market, where the supply of homes for sale depends on the willingness of current owners to sell their houses, the new-homes market hinges on builders’ ability to erect new homes. That is, the supply of homes for sale is more responsive to demand.
Year-to-date through May, a total of 294,000 new houses have been sold (this is the actual number of homes sold rather than the annualized rate shown in the graph above). This is 9% more than the 270,000 new homes that were sold in the first five months of 2017.
The robust number of new home sales is the result of strength in the Midwest region, where sales have jumped more than 19% compared to last year. The West also contributed with an 11% gain in the first five months.
Along with the increase in the number of new houses sold, builders have increased their demand for construction workers. Thus, we find that there are currently 232,000 job openings in construction, and so far this year, they have been seeking an average of 225,000 workers per month. This is 21% higher than the level last year, when, on average, there were 190,000 openings.
Number of Bathrooms in New Homes Ebbs
Data revealed last month showed that new houses have been getting smaller over the past couple of years. In fact, consumers purchased homes in 2017 that, at 2,645 square feet on average, were 74 square feet smaller than those built two years earlier.
Accordingly, relative to 2015, there has been a modest drop in the proportion of new houses built with three or more bathrooms. Last year, 37% of the houses completed fell in this group, compared to 38% in 2015. Conversely, the proportion of homes with two bathrooms rose from 29% in 2015 to 31% last year.
This is evidence that the decline in house size translates into a slight reduction in the number of bathrooms. Basically, this is the result of builders concentrating slightly more on two-bedroom homes that are more financially accessible to consumers.
Regionally, we find that the largest proportion of homes with three or more bathrooms is found in the South, with 40% of the total single-family houses having three or more baths. The West region has the second-largest proportion of houses with more bathrooms.
Curiously, at the other extreme, the Northeast has the second smallest proportion of houses with three or more bathrooms, even though this region has the biggest new houses in the nation. The average new home in the Northeast is nearly 11% larger than the national average, but it also has the largest proportion of 2.5-bathroom homes among the four regions.
But this doesn’t mean there will be large changes in the configuration of new homes from year to year. Any such changes are driven by demographic factors, which normally take several years to develop. It’s only when we compare today’s new houses with those built a decade or more ago that we find significant changes.
Mortgage Rates Fall Again
Mortgage rates moderated further last week, falling by a negligible two basis points (0.02%) to 4.55%. The primary reason underlying the falling rates is slowing demand for mortgage loans, despite the Federal Reserve Bank’s policy of tightening and increasing the level of interest rates in general.
The impact of higher mortgage rates on the remodeling market is much smaller. This is because the majority of remodeling projects are financed by consumers using their savings, or other sources not tied to the mortgage markets. So while we may expect to see little improvement in new residential construction or home sales, residential remodeling should continue to grow.
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.
