“Vital Statistics”: What the Latest Indicators Are Telling Us About the Health of America’s Housing Market
New home construction indicators released this morning are showing us that permits, starts, completions and sales are all on the upswing. This translates to recovering numbers, but still only about half way to what we would normally consider to be a healthy new home market. New homes peaked at 2.07 million in 2005 and then tanked at 588,000 in 2010. 780,000 new homes were started in 2012. 2013 is on track for over 915,000 new homes (while this is significantly less than existing home sales – see below - its importance lies in the fact that each new home constructed and sold also accounts for 3 new jobs for a year and about $90,000 in tax revenue).
- New home starts up by almost a third (28%) year over year.
- New home completions up by over a third (35.6%) year over year.
- New home sales up one-fifth (20%) year over year.
This is consistent with existing home sales which are also on a long-term upward trend now, translating to about 5 million annualized sales. Existing home sales peak at 7.25 million in 2005 then tanked in July 2010 to 3.41 million. Last year there were around 4.7 million sales. We expect to see around 5.1 this year. Around 5.5 million would be healthy. Current numbers will be released later this week. With only about 1.7 million existing homes available in inventory, existing home sales prices are bound to continue rising which will translate to a positive effect on new home demand, sales and prices too.
- Existing home sales are up 9.1% year over year
- Existing home inventory is down to 4.2 months
- Existing home prices are up from 6 to 12% year over year in most markets. Current numbers will be released later this week from NAR and next week from Case Shiller
Across the board, the factors influencing both new and existing home sales as well as prices include low interest rates and tight inventory. Sound familiar ? … Hence the speculation by some that new housing bubbles are be forming in certain markets.
Though it doesn’t directly impact new home sales, the wild card in existing home sales – still - is distressed sales. Even though starts are down 25% since last year across the US, this past month they were up in 32 states over last month and in 16 states over last year. About 23% of all existing home sales are still foreclosures and short sales and about 20% of existing home sales are still going to investors, who will presumably rent or flip these units. With foreclosures on the rise again in some of the hardest hit regions (Florida foreclosures are up by about a third) and 1 in every 4 homeowners with a mortgage still underwater and at high risk of default and foreclosure, distressed sales – which typically sell for 12 to 20% less – in these areas will keep prices down for some time to come. What remains to be seen is how investors, hoping for fast big returns and-or ever increasing rental rates in the absence of increased wages to support them – will respond as renewed foreclosures in these areas lead to adverse impacts.
All of this bodes well for new home sales. Builder focus on price and inventory in making their decision to build more. Both are looking good. Generally buyers pay a premium for a new home over an existing home. However, given the lack of existing home inventory and poor condition of many existing homes, low interest rates which translate to ability to buy “more house,” overall price stabilization confidence, and builder ability to tweak product to local needs and demands, we more and more buyers are once again considering new construction. Because of other headwinds, including construction financing, the new home market will need until around 2015 to fully recover. And the wild card actually has nothing to do with the organic real estate market. Instead it’s all about intervention: concern over whether or not home mortgage loans will be accessible after new QM and QRM rules take effect under Dodd Frank. And what kinds of impacts solve the Federal budget arm wrestling will have on tax benefits for home owners. Without this added incentive, many folks may decide to stay put.