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Housing Market Reports Mixed in April; Outlook is for Slow Improvement

05/25/2011 by Jim Haughey, RCD Chief Economist

April housing market reports were mixed. New home sales were up nearly 8% and were 8% above the trailing 12 month average. But permits and starts declined to slightly below the 12 month average. New home prices ticked up in April but appear to still be in a mild declining trend. Inventories of new homes for sale continue to shrink from already record low levels. This has reduced the months’ supply of new homes for sale to 6.5 which is the lowest reading since late 2006 except for several months during the homebuyer tax credit period.

Homebuilders have cleaned up the mess on their side of the fence. They have reduced prices and cut starts and inventories to approximately match the current depressed market conditions. Homebuilders will respond quickly to the improvements in demand expected in 2011-12. Housing demand growth will be modest because it is derived from the subpar economic growth. The forecast is for the pace of economic growth to rise to 3% or more in the second half of the year after a sluggish start in the 2% plus range. Hence, new home permits, starts and sales are expected to increase at a progressively rising pace through 2012.

Nonetheless, the housing recovery will continue to be slow compared to recent housing recoveries because more mess remains to be cleaned up by current homeowners, by mortgage originators and mortgage investors and by the legal system that processes defaulted mortgages. Housing starts are projected to reach 665,000 in the final quarter this year and 949,000 by the final quarter of 2012.

The restraints on starts from the existing home market, the mortgage market and the legal system worsened slightly in April and early May. The outlook for these restraints is to ease very gradually over the next two years. Until they are gone, they will partially offset the boost to starts coming from rising employment, expansionary monetary policy and the reduced inventory of new homes for sale. Existing home sales dipped slightly in April but the inventory of existing homes for sale jumped and existing home prices fell significantly after a period of near stability. This is added competition for homebuilders.

The inventory jump is the result of more defaulted homes being put on the market after clearing the necessary legal steps even though fewer defaulted homes are now entering the foreclosure process. 1-2 million more homes with troubled mortgages have yet to be sold at distress prices, at short sales or by the foreclosing lender. Also, the legal process has gotten murkier. Countless programs are in place or being proposed in legislatures or courts at all levels of government that impact the legal handling of defaulted mortgages. Generally, they slow the handling of defaulted mortgages by providing funds to financially troubled homeowners, imposing moratoriums on foreclosures are requiring added legal steps to finalize foreclosures.

In addition to causing foreclosure delays, some of the recent anti-foreclosure initiatives also demand that mortgage originators, lenders, investors and servicers pay several tens of billion dollars to atone for their sins. This is not yet resolved but has the potential to add further restraint on housing starts by siphoning off mortgage capital and prompting a rise in mortgage rates.

Housing Market Monitor — April 2011

Consumer buying power Latest
Year Ago 12-Month
Home Affordability Index NAR Index Mar 187.8 193.2 173.8 178.1
Consumer income growth
(3 mo. annualized % change)
US Commerce Dept. Mar 8.3 7.2 3.7 4.7
Consumer real income growth
(3 mo. annualized % change)
US Commerce Dept. Mar 3.0 3.0 1.3 2.7
Employment (000s jobs per month) US Labor Dept. Apr 244 221 277 109
30-Y fixed mortgage rate (Freddie Mac) Freddie Mac Apr 4.84 4.84 5.11 4.63
1-Y ARM (Freddie Mac) Freddie Mac Apr 3.2 3.22 4.19 3.45
Consumer Confidence Index Conference Board Apr 65.4 63.8 57.7 58.8
Household net worth growth
(annual % change)
Federal Reserve Board 4th Q 5.9 3.2 2.4 6.9
New home construction
Permits (000s, annualized) US Census Bureau Apr 551 574 632 571
Sales (000s, annualized) US Census Bureau Apr 323 301 420 298
Starts (000s, annualized) US Census Bureau Apr 523 585 687 563
Homes under construction (000s, annualized) US Census Bureau Apr 418 422 489 437
Homes completed (000s, annualized) US Census Bureau Apr 554 532 744 611
New home inventory US Census Bureau Apr 175 180 217 196
Total new home inventory (month supply) US Census Bureau Apr 6.5 7.2 6.2 8.0
Home sale price (median) US Census Bureau Apr $217,900 $214,500 $208,300 $222,667
Residential contractor hourly wage
(ann. % change)
US Labor Dept. Mar -1.9 -1.0 2.0 0.4
Housing market index NAHB/Wells Fargo May 16 16 22 16
Existing home competition
Pending home sales index (2001 = 100) NAR Mar 94.1 89.5 104.6 87.6
Home inventory (months supply) NAR Apr 9.2 8.3 8.4 9.4
Homes sold (000s annualized) NAR Apr 5,050 5,090 5,800 4,843
Median existing home sales price NAR Apr $163,700 $159,800 $172,400 169,617
Median home price index
(ann. % change, purchase only)
FHFA Feb -5.8 -4.7 -3.6 -3.5
Remodeling contractor hours worked
(not sea. adj.)
US Labor Dept. Mar 34,128 33,728 33,373 36,308
Mortgage refinancing applications index MBA Apr 7945 9184 8997 13067
NAHB remodeling index NAHB 4th Q 41.5 40.8 41.3 42.4
Leading Index of Remodeling Activity
(ann. % change)
Harvard Joint Center 4th Q 3.2 1.8 -7.1 1.5

Abbreviations: NAR = National Association of Realtors; NAHB = National Association of Home Builders;
FHFA = Federal Housing Finance Administration
Table: Reed Construction Data and Reed Construction Data – CanaData.


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