By: NAHB Chief Economist Robert Dietz
New and existing home sales stumbled in September, as higher interest rates slowed the housing sector amid otherwise positive macroeconomic conditions — including a near 50-year low for unemployment. The average 30-year fixed-rate mortgage now stands at 4.9%, up from 3.95% a year ago.
Due to the higher cost of financing, new single-family home sales fell 5.5% in September from a downwardly revised August estimate. While new home sales remain 3.5% higher on a year-to-date basis, the September rate was the lowest since December 2016. Consequently, inventory increased to an elevated 7.1-months’ supply. Existing home sales declined 3.4% in September, falling to its slowest pace in nearly three years — and 4.1% lower than a year ago.
While economic forecasts, including NAHB’s, have single-family construction rising modestly over the next year, weakness has been felt at both the top and bottom ends of the market. For example, over the past year, there have been nationwide declines in the shares of new home sales priced under $200,000 (whose buyers are typically more sensitive to interest rate hikes) and above $500,000 (higher-priced homes challenged by affordability concerns).
Homes that meet current affordability standards are selling quickly. For new homes, the average time on market was only 2.9 months, down from 3.2 months a year ago. For existing homes, the average home is selling in just 32 days. These data points reemphasize the need for builders to select their market carefully and manage rising construction costs in an otherwise growing economy.
U.S. house prices rose in August, up 0.3 percent from the previous month, according to the Federal Housing Finance Agency (FHFA) seasonally adjusted monthly House Price Index (HPI). The previously reported 0.2 percent increase in July was revised upward to 0.4 percent.
The FHFA monthly HPI is calculated using home sales price information from mortgages sold to, or guaranteed by, Fannie Mae and Freddie Mac. From August 2017 to August 2018, house prices were up 6.1 percent.
For the nine census divisions, seasonally adjusted monthly price changes from July 2018 to August 2018 ranged from -0.7 percent in the Middle Atlantic division to +0.8 percent in the Pacific division. The 12-month changes were all positive, ranging from +4.0 percent in the Middle Atlantic division to +8.4 percent in the Mountain division.
The House Price Index for the Upstate:
- Greenville County: 150.6
- Oconee County: 133.1
- Pickens County: 131.7
- Anderson County: 128
- Spartanburg County: 124.3
- Laurens County: 119.4
The indexes represent a measure of the change in housing prices since 2000.
Sales of newly built, single-family homes rose 12.2% in 2016 to 563,000 units, the highest annual rate since 2007, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. New home sales fell 10.4% in December 2016 to a seasonally adjusted annual rate of 536,000 units.
“We are encouraged by the growth in the housing sector last year, and by the fact that builders increased inventory by 10% in anticipation of future business,” said Robert Dietz, chief economist of the National Association of Home Builders. “National Association of Home Builders’ forecast calls for continued upward momentum this year, with housing starts expected to rise 10% over the course of 2017.”
“To ensure sales continue to move forward in 2017, builders need to price their homes competitively, especially given that mortgage interest rates are expected to rise this year,” said National Association of Home Builders Chairman Granger MacDonald.
The inventory of new home sales for sale was 259,000 in December, which is a 5.8-month supply at the current sales pace. The median sales price of new houses sold was $322,500.
Regionally, new home sales increased 48.4% in the Northeast. Sales fell 1.3% in the West, 12.6% in the South and 41% in the Midwest.
Led by impressive gains in both single-family and multifamily production, nationwide housing starts surged 25.5% in October to a seasonally adjusted annual rate of 1.32 million units, according to newly released data from the US Department of Housing and Urban Development and the Commerce Department. Single-family starts reached their highest level since October 2007 while multifamily production jumped 68.8% from the previous month.
“These robust figures correlate with strong builder optimism in the housing market,” said National Association of Home Builders Chairman Ed Brady. “A firming job market, a growing economy and rising household formations will keep the housing recovery on track into next year.”
“Multifamily production bounced back after an unusually weak reading last month, while single-family starts exhibited unusually strong growth as well,” said National Association of Home Builders Chief Economist Robert Dietz. “Though October’s single- and multifamily production rates are clearly unsustainable, we expect continued growth in the housing sector in the months ahead.”
Single-family starts rose 10.7% in October to a seasonally adjusted annual rate of 869,000 units while multifamily production climbed 68.8% to 454,000 units.
Combined single- and multifamily starts posted double-digit gains in all four regions in October. The Northeast, Midwest, South and West increased 44.8%, 44.1%, 17.9% and 23.2%, respectively.
Overall permit issuance edged up 0.3% to a seasonally adjusted annual rate of 1.23 million in October. Single-family permits rose 2.7% to a rate of 762,000, while multifamily permits fell 3.3% to 467,000.
Permit issuance increased 12.1% in the Midwest and 7.5% in the West. Meanwhile, the Northeast and South posted respective losses of 21.1% and 2.4%.
Information obtained from the public-use microdata files provided by the U.S. Census Bureau’s Survey of Construction and tabulated by the National Association of Home Builders, shows that there is a greater share of two or more story homes completed than one story homes. In addition, the greatest share of two or more story homes are in divisions along the coasts of the country. Analysis of the data shows that the Northeast region has a significantly higher proportion of two or more story single-family home completions compared to its counterparts across the country. Similarly, the Pacific Division, a component of the West Region, also has a noticeably higher proportion of two or more story homes completed.
The Survey of Construction is a monthly and annual report released by the US Census Bureau that records valuable information related to the home building industry. This information includes variables such as start and completion dates, sales price, square footage and number of bedrooms. Survey of Construction data is used by the Department of Housing and Urban Development to evaluate housing programs as well as by the Federal Reserve Board to determine the state of the economy as a whole.
Nationwide, the majority of single-family homes completed in 2015 were two or more stories, 58%, the rest, 42%, were one story. The data show that the Northeast has the largest proportion of completed two or more story single-family homes. The distributions between one story and two or more story completed homes are similar in the South and the West. In the South, 57% of completed single-family homes were two or more stories and 43% were one story while in the West, 59% of completed single-family homes were two or more stories and the rest, 41%, were one story. The Midwest was the only region of the country where the majority of single-family completed homes were one story.
In contrast to the nationwide distribution between one story and two or more story completed homes, arecent National Association of Home Builders report chronicling consumers’ housing preferences finds that most, 64% of all buyers, would prefer a single-story home, however it is important to point out that this result is driven primarily by older buyers that may be exhibiting a preference for single-story homes due to aging-in-place concerns. According to National Association of Home Builders’ Housing Preferences of the Boomer Generation, 75% of boomers and 88% of seniors want one floor living, but fewer than half of millennials, 35%, and generation X’ers, 49%, prefer a one story home.
Looking deeper, the similarities between the West and the South mask differences between the Census divisions that compose each region. While overall, 59% of single-family completed homes in the West were two or more stories, 69% were two or more stories in the Pacific Division while fewer than half, 47% were two or more stories in the Mountain Division. Similarly, while 57% of single-family completed homes were two or more stories across the entire South region, 66% of completed homes in the South Atlantic were two or more stories. In contrast, fewer than half of completed homes in the West South Central division were two or more stories. In the East South Central 58% of homes were two or more stories.
The map below illustrates how two or more story homes account for the largest portion of completed homes in coastal divisions of the country, New England, Middle Atlantic, South Atlantic, and Pacific. The high share of two or more story completed homes in the Northeast, encompassing the New England and Middle Atlantic divisions, may partly reflect expensive lot values. Recent National Association of Home Builders analysis found that median lot values in the New England and Middle Atlantic divisions far surpasses lot values elsewhere in the country. At the same time higher density and land constraints may also have contributed to a higher proportion of two or more story homes across coastal divisions.