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Housing Starts Up In June, But Existing Home Market Shows No Improvement

07/28/2011 by Jim Haughey, RCD Chief Economist

The new home market strengthened in June back to the level of starts reached during the homebuyer tax credit. Without any government buyer subsidies, this is the strongest new home market since 2008. However, most of the June gain was for multi-family starts, primarily apartments. This random bunching of apartment starts in June follows earlier gains in multi-family permits. There no longer is a backlog of permits and apartment demand sagged during the spring along with job gains. Total starts may dip a little below the June level during the summer but quarter to quarter gains in starts are likely for several years.

By contrast, the existing home market is still stuck at the bottom of the business cycle and sank a little deeper during the spring. While homebuilders have reduced their inventory to almost match the current low level of sales, real estate brokers are powerless to do this. There are too many houses in most markets. Financially distressed families are selling at depressed prices and becoming renters or moving in with friends or relatives. Eventually the surplus of homes will be knocked down, converted to other uses or absorbed by rising employment. Until then, new home builders are at a serious competitive price disadvantage with existing home sellers. This will be a multi-year process in the most distressed markets where there is a large shadow inventory of home soon to emerge from the foreclosure process and be offered for sales as well as hundreds of thousands of single family homes in the rental market until sales prospects improve.

This bleak situation is unlikely to improve noticeably for several months given the recent drop in both consumer and business confidence stemming from concern over deficit and debt issues. 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.

.Credit access is still a constraint on home sales. There has been plenty of credit available since late in 2009. The credit problem is the return to normal commercial credit approval standards now that lenders can no longer assume that the federal government will cover excessive default losses. No change in these standards is expected in the next few years. But credit access will gradually improve as prospective homebuyers repair their credit scores and rebuild their assets. Also, as soon as home prices are clearly improving, bank real estate appraisers will stop trimming estimates on the assumption that home prices will keep falling. This will quickly give home sales a boost of 10% or more as fewer sales contracts will be cancelled by unexpectedly low appraisals.

Housing Market Monitor — June 2011

Consumer buying power Latest
Year Ago 12-Month
Home Affordability Index NAR Index May 182.7 187.1 168.7 180.6
Consumer income growth
(3 mo. annualized % change)
US Commerce Dept. May 5.5 6.7 4.8 4.7
Consumer real income growth
(3 mo. annualized % change)
US Commerce Dept. May -0.1 0.2 3.8 1.7
Employment (000s jobs per month) US Labor Dept. Jun 18 25 -192 86
30-Y fixed mortgage rate (Freddie Mac) Freddie Mac Jun 4.51 4.64 4.70 4.59
1-Y ARM (Freddie Mac) Freddie Mac Jun 3.00 3.13 3.78 3.32
Consumer Confidence Index Conference Board Jun 58.5 61.7 54.3 59.1
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 Jun 624 609 585 578
Sales (000s, annualized) US Census Bureau Jun 312 315 307 301
Starts (000s, annualized) US Census Bureau Jun 629 549 539 570
Homes under construction (000s, annualized) US Census Bureau Jun 419 415 447 429
Homes completed (000s, annualized) US Census Bureau Jun 535 544 881 573
New home inventory US Census Bureau Jun 211 210 211 202
Total new home inventory (month supply) US Census Bureau Jun 6.3 6.4 8.2 7.5
Home sale price (median) US Census Bureau Jun $234,000 $217,700 $219,500 $220,775
Residential contractor hourly wage
(ann. % change)
US Labor Dept. May -1.5 -1.5 1.8 -0.2
Housing market index NAHB/Wells Fargo Jul 15 13 14 15
Existing home competition
Pending home sales index (2001 = 100) NAR May 88.8 82.1 77.7 86.0
Home inventory (months supply) NAR Jun 9.5 9.1 8.9 9.6
Homes sold (000s annualized) NAR Jun 4,770 4,810 5,230 4,728
Median existing home sales price NAR Jun $184,300 $169,300 $182,800 169,083
Median home price index
(ann. % change, purchase only)
FHFA May -6.3 -6.4 -1.2 -4.3
Remodeling contractor hours worked
(not sea. adj.)
US Labor Dept. May 35,794 34,268 35,847 36,236
Mortgage refinancing applications index MBA Jun 10,530 12,365 14,228 12,805
NAHB remodeling index NAHB 1st Q 47 42 44 42
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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