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Housing Starts Inch Up in May, But Sustained Recovery Has Not Begun

06/28/2011 by Jim Haughey, RCD Chief Economist

The new home market strengthened slightly in May but only to the top of the range where it has been stuck for two years. However, the existing home market softened further with continuing declines in sales, prices and a rise in the inventory of homes for sale to 9.3 months, far above the 5-6 months that is the top of the normal range. Homebuilders cut their inventory to a new record low but still are not price competitive with distress sales of existing homes. Short sales, discounted sales to avoid foreclosure and sales of foreclosed homes are about 1/3 of total existing home sales. This lowers prices and keeps most potential home buyers out of the new home market.

This bleak situation is unlikely to improve noticeably for several months, given the May drop in consumer confidence and the probability that the cleaned up foreclosure process will soon produce a spike in discounted bank owned homes for sale.

Regionally, there are a few markets which have modestly rising home prices, near normal inventory and appear to have a sustained rise in housing starts. This includes Washington DC and much of Texas and the northern Plains.

The multi family market, mostly due to apartments, is clearly improving but it is too small to fully offset the weakness in the single family market. Multi family starts in the last 12 months were 40, 000 above the prior 12 months. But single family starts fell 75,000 over the same period.

Since March 2010, 800,000 new jobs have prompted a surge of apartment rentals. Rental applications are accepted with minimal upfront cash and credit scores lower than those expected of mortgage applicants. The apartment vacancy rate has dropped sharply and rental rates have become to rise. In turn, this has set off a rapid increase in multifamily starts in response to higher expected operating profits. Multi family starts will continue rising although the much lower spring job gains will temper the starts improvement.

Housing Market Monitor — June 2011

Consumer buying power Latest
Year Ago 12-Month
Home Affordability Index NAR Index Mar 187.8 193.2 173.8 179.3
Consumer income growth
(3 mo. annualized % change)
US Commerce Dept. Mar 7.4 6.3 3.7 4.6
Consumer real income growth
(3 mo. annualized % change)
US Commerce Dept. Mar 0.8 1.4 1.3 2.0
Employment (000s jobs per month) US Labor Dept. May 54 232 458 73
30-Y fixed mortgage rate (Freddie Mac) Freddie Mac May 4.64 4.84 4.89 4.61
1-Y ARM (Freddie Mac) Freddie Mac May 3.13 3.2 3.99 3.38
Consumer Confidence Index Conference Board May 60.8 66 62.7 58.7
Household net worth growth
(annual % change)
Federal Reserve Board 1st  Q 5.0 6.4 13.4 6.9
New home construction
Permits (000s, annualized) US Census Bureau May 612 563 582 575
Sales (000s, annualized) US Census Bureau May 319 326 281 302
Starts (000s, annualized) US Census Bureau May 560 541 580 563
Homes under construction (000s, annualized) US Census Bureau May 418 419 477 432
Homes completed (000s, annualized) US Census Bureau May 544 542 702 602
New home inventory US Census Bureau May 166 172 215 192
Total new home inventory (month supply) US Census Bureau May 6.2 6.3 9.2 7.7
Home sale price (median) US Census Bureau May $222,600 $217,000 $230,500 $222,542
Residential contractor hourly wage
(ann. % change)
US Labor Dept. Apr -1.5 -1.9 1.6 0.1
Housing market index NAHB/Wells Fargo Jun 13 16 16 15
Existing home competition
Pending home sales index (2001 = 100) NAR Apr 81.9 92.6 110.9 85.1
Home inventory (months supply) NAR May 9.3 9.0 8.3 9.6
Homes sold (000s annualized) NAR May 4,810 5,000 5,680 4,767
Median existing home sales price NAR May $166,500 $161,100 $174,600 168,725
Median home price index
(ann. % change, purchase only)
FHFA Apr -5.7 -6.2 -1.5 -3.8
Remodeling contractor hours worked
(not sea. adj.)
US Labor Dept. Apr 34,268 34,268 35,518 36,241
Mortgage refinancing applications index MBA May 12365 7945 11808 13114
NAHB remodeling index NAHB 1st Q 46.5 41.5 43.8 42.4
Leading Index of Remodeling Activity
(ann. % change)
Harvard Joint Center 1st Q 7.1 2.6 -3.0 3.7

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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