The NAHB Housing Market Index for May dropped from 56 to 54. I was looking for an increase to 57. The index’s components were mixed in May with the component charting sales expectations over the next six months rising one point to 64, the index measuring buyer traffic dropping a single point to 39, and the component gauging current sales conditions down two points to 59.



Despite this month’s slight dip, builder confidence in the new home market remains above the 50-point benchmark. Clearly, the data suggests that consumers are still exhibiting caution, and want to be on more stable financial footing before purchasing a home. That said, the HMI component measuring future sales expectations has been tracking upward all year, mortgage rates remain low, and house prices are still relatively affordable. I believe that these factors should spur the release of pent-up demand moving forward.

U.S. Housing Starts rose 20.2% in April to 1.135M (SAAR) from an upwardly revised 944,000 (from 926,000) in March. I was looking for an increase to one million units (SAAR).


After the sub-par first quarter – when housing starts plummeted to some of their worst levels since the middle of last year – construction levels rebounded significantly in April. In fact, the April report revealed a lot of historic “firsts” and, contrary to most of the economic data thus far in 2015, these “firsts” were actually good ones!

April was the first month where starts reached 1.135M since November of 2007. It was the first time starts increased by at least 20.2% in a month since a 20.9% increase in February of 1991; and it was the first time starts increased by at least 191,000 since starts rose by 279,000 in January of 2006.

And the news gets even better!

Single-family starts increased 16.7% in April to 733,000 from 628,000 in March. That was the most single-family homes started since January 2008 when 773,000 were started AND represents the largest monthly increase, in both percentage and absolute terms, since November of 2013.

U.S. Building Permits rose from an upwardly revised 1.038M (from 926,000) to 1.143M (SAAR). I was looking for an increase to 1.065M.


Single family permits rose by 3.7% in April versus the previous month and multifamily permit activity saw a spectacular turnaround with a monthly increase of 20.5% after having declined by 16.1% a month earlier.

Washington State Employment data for April showed impressive gains at the State and local level. As I had anticipated, the Seattle metro area continued to add jobs at a healthy rate with a monthly increase of 5,100 jobs – well above my forecast of 2,700 – and the State added 8,200 jobs in the month. Year over year, Washington has added 115,800 new jobs and the Seattle region is up by 62,800.

WA Employment

I was also very interesting to see that the Real Estate, Rental & Leasing sector has bounced back (+10.3% y/y). The current employment level in this sector was measured at 32,300 in April – an all-time high!

WA Employment1

In all, the report was very encouraging with the Seattle region increasing its employment by a very healthy 4.1%. The Construction sector continues to lead the way (+17.2% y/y) followed by Professional & Business Services (+5.5%).

The annual change at the State as well as metropolitan level is remarkably impressive. With annual growth rates of 3.8% and 4.1%, we have to go all the way back to the late 1990’s to find a time when job growth was this strong!

With this healthy growth rate, the State jobless rate dropped from 5.9% to 5.5% while the Seattle region dropped from 4.5% to 4.3%. I had forecast a drop to 4.4%.

WA Unemployment

The last time that the Seattle metro area saw unemployment at 4.3% was in June of 2008 – just at the onset of the recession.

U.S. Initial Unemployment Claims increased to 274,000 for the week ending May 16 from an unrevised 264,000 for the week ending May 9. I was looking for an increase to 270,000.

Initial Claims

Despite this week’s increase, the four-week moving average fell to 266,250 from 271,750. That is the lowest level since April 2000.

U.S. Existing Home Sales in April declined 3.3% in April to 5.04M SAAR from an upwardly revised 5.21M SAAR (from 5.19M SAAR) in March. I was expecting to see an increase to 5.24M SAAR.


This was a surprise. I believed that buying conditions were ripe for a breakout in April with employment conditions materially improving over the past few months, income growth on the rebound, mortgage purchasing applications on the rise, and the pending home sales index moving higher. Yet sales gave back much of the gain seen in March.

The National Association of Realtors blamed the lackluster report on low supply, which has resulted in upward trending prices. As proof of this, the average property sold in April was only marketed for 39 days, which was the fastest selling pace since July 2013; moreover, roughly 40% of the properties sold went at or above asking price.

Inventories did manage to increase in April, up 10% to 2.210M, but are still down 0.9% year-over-year. That represents a 5.3 months’ supply at the current sales rate, which is well below the 6 months’ supply that occur during normal selling periods.

The median home price increased 8.9% year-over-year to $219,400.

Despite improvements in underlying economic conditions, existing home sales weakened in April.

Data on March permit activity in the Puget Sound was a mixed bag with year-to-date and monthly permits issued down in King and Pierce counties but markedly higher in Snohomish County.

Local PermitsLocal Permits2

I still believe that we will not see any material improvement in King County permit issuance this year, or indeed beyond. We are running out of land to build on and – at some point in the near future – the State will need to address this with a discussion regarding moving the Urban Growth boundaries.

Inflation, as measured by the Consumer Price Index, met my forecast for an increase of 0.1% in April after increasing 0.2% in March. The core rate, which excludes food and energy rose by 0.3% in the month after increasing by 0.2% in March. This was modestly above my forecast for an increase of 0.2%.

At the local level, the Seattle Tacoma Bremerton area saw prices rise by 0.4% between April of 2014 and April of 2015 and the core rate rising by 2.0% year-over-year.


Nationally, that was the largest monthly increase in core prices since a 0.3% gain in January 2013

There were no outliers in the core CPI data. Price growth was fairly universal across all consumption sectors. That included a 0.3% increase in shelter costs and a 0.7% increase in medical care prices, which was the largest monthly increase since January 2007.

Locally, the annual core inflation rate remains exactly at its long-term average of 2.0% with the overall rate well below the long-term average of 2.3%.

Core price growth is unlikely to be sustainable at this level without a change in income growth trends. And the pervasive lackluster income growth will keep downward pressure on price gains. CPI growth trends are well below the Fed’s target level, and there are very few underlying pressures that would cause these trends to suddenly change.


What to Watch for This Week

The Case Shiller Index data for March should show prices for the 20-City index up by 5.1% year over year and the Seattle market 7.3% higher than seen a year ago.

U.S. New Home Sales declined 11.4% in March to 481,000 but I am looking for an increase in the April figures with sales up to an annual rate of 510,000 units.

Consumer Confidence declined to 95.2 in April and I think that we will see a little boost. Look for it to increase to 95.5.

U.S. Initial Unemployment Claims will stay at around 270,000.

The NAR Pending Home Sales Index for April should show further growth from the 1.1% increase seen the prior month. I expect to see an increase of 1.1%.

The second estimate for U.S. GDP will show that the economy contracted by 0.7% in the first quarter – down from the 0.2% expansion that was suggested in the initial estimate.

The final Consumer Sentiment number for May will likely be revised higher – from 88.6 to 89.0.