What I Saw Last Week
The NAHB Housing Market Index said its housing-market index fell by three points to 68 in April (I had forecast a more modest drop to 70).
Even with this contraction in this index, I am not concerned with the drop as there is clearly continued demand for new construction housing. That said, builders are facing several challenges including hefty regulatory costs and ongoing increases in building material prices.
Irrespective of this modest drop, I believe that builder confidence is on very firm ground, and home builders are reporting strong interest from potential buyers.
U.S. Building Permits jumped 3.6% to a seasonally adjusted annual rate of 1.260M – I expected to see the figure rising to an annual rate of 1.240M units.
The growth was driven by a 13.8% surge in multifamily permits while single-family permits were flat to down in every region, except for the South (+1.3%). The Midwest saw the largest decline in single-family permits (-5.9%).
Though single-family permits fell 1.1% last month, they remain not too far from the more than nine-year high reached back in February. A tightening labor market, which is generating steady wage growth, is underpinning the housing market.
U.S. Housing Starts ran a bit loose in March with starts checking in at a seasonally adjusted annual rate of 1.215M units – I had expected to see a figure closer to 1.260M units – down 6.8% from the upwardly revised rate of 1.303M (from 1.288M) for February.
The downturn in starts was evenly balanced with single-family starts down 6.1% to 821,000 and multi-unit starts down 7.9% to 394,000. Single-family starts were flat or down in every region, except for the South (+3.2%). The Midwest saw the largest decline, with single-family starts down 35% from February.
Notwithstanding the weaker-than-expects starts data for March, this report held some positive connotations for first quarter GDP, as the number of units under construction at the end of the period was little changed at 1.085 million. That left the first quarter average of 1.081 million above the fourth quarter average of 1.054 million.
The key takeaway from the report is that single-family permits fell 1.1% to 823,000, which is a discouraging indicator for a housing market very much in need of new supply, specifically at lower price points.
U.S. Existing Home Sales in March rose 4.4% to a seasonally adjusted annual rate of 5.71 million units – I had forecast a smaller rise to an annual rate of 5.55M units.
March sales were 5.9% above the same period a year ago and marked the highest pace of sales since February 2007 when they stood at 5.79 million.
Total inventory increased 5.8% to 1.83 million existing homes for sale at the end of March, yet that is down 6.6% from a year ago. At the current sales pace, unsold inventory is at a 3.8-month supply versus the 4/6-months’ supply typically associated with a more balanced market.
The median existing home price for all housing types increased 6.8% year-over-year to $236,400, which is the 61st consecutive month of year-over-year gains. The median existing single-family home price jumped 6.6% year-over-year to $237,800.
The key takeaway from the report is that demand is strong, inventory is still low, and prices continue to rise, meaning it is important for mortgage rates to stay low to support affordability conditions since home prices are rising at a much faster pace than personal income.
What to Watch for This Week
The Case Shiller Index data for February is likely to show prices up 5.8% year-over-year (from 5.7% in January). Demand remains robust in most the country.
U.S. New Home Sales rose at an annual rate of 592,000 units in February and I anticipate a slight contraction when the March data is released. Look for a number of around 590,000.
Consumer Confidence jumped to 125.6 in March and I expect to see the April number pull back a little to 122.3.
The NAR Pending Home Sales Index rose 5.5% in February and the March figure should drop back slightly on inventory constraints. Look for a rise of 4.8%.
The first take on US GDP in the first quarter of 2017 should show the economy having expanded by 1.1%.
The final Consumer Sentiment number for April should show no change from the preliminary figure of 98.0.