What I Saw Last Week
The NAHB Housing Market Index for newly-built single-family homes fell two points to 68 in June – I had forecast the index to have remained at 70.
The decline was due in large part to sharply elevated lumber prices, although sentiment does remain on solid ground.
Improved economic growth, continued job creation and solid housing demand should spur additional single-family construction in the months ahead. However, builders do need access to lumber and other construction materials at reasonable costs in order to provide homes at competitive price points, particularly for the entry-level market where inventory is most needed.
Builders are optimistic about housing market conditions as consumer demand continues to grow. However, they are increasingly concerned that tariffs placed on Canadian lumber and other imported products are hurting housing affordability. Record-high lumber prices have added nearly $9,000 to the price of a new single-family home since January 2017.
All three HMI indexes inched down a single point in June. The index measuring current sales conditions fell to 75, the component gauging expectations in the next six months dropped to 76, and the metric charting buyer traffic edged down to 50.
U.S. Housing Starts rose 5% in May to a seasonally adjusted annual rate of 1.35 million units. I had forecast an increase to 1.323 million.
Single-family starts increased 3.9% in May, led by a 10.2% increase in the Northeast and a 44.4% surge in the Midwest; however, they declined 3.5% in the South and 0.5% in the West. Multi-unit starts increased 7.5%.
The takeaway from this report is that starts are up 11% in the first 5-months of this year and are now at their highest level since July of 2007.
U.S. Building Permits dropped 4.6% to an annual rate of 1.301 million – I had forecast a drop to 1.343 million.
Permits for single-family homes were up 11.8% in the Northeast, down 1.6% in the Midwest, down 3.3% in the South (the nation’s largest housing market); and down 3.3% in the West.
The takeaway from the report is that permits — a leading indicator — declined for both single-family units (-2.2%) and multi-unit dwellings (-8.8%), suggesting there might not be follow-on strength for badly needed single-family homes in June.
U.S. Existing Home Sales decreased 0.4% month-over-month in May to a seasonally adjusted annual rate of 5.43 million units – I had anticipated the figure improve to 5.55 million – from a downwardly revised 5.45 million (from 5.46 million) in April.
Total sales were 3.0% lower than the same period a year ago and have fallen year-over-year for three straight months.
The median existing home price for all housing types increased 4.9% to an all-time high of $264,800, which was the 75th straight month of year-over-year gains. The median existing single-family home price was $267,500, up 5.2% from a year ago.
The inventory of homes for sale at the end of May increased 2.8% to 1.85 million, yet that is 6.1% lower than the same period a year ago. The inventory of existing homes for sale has fallen year-over-year for 36 consecutive months.
Unsold inventory is at a 4.1-month supply at the current sales pace, versus 4.2 months a year ago and the 6.0-month supply typically associated with a more balanced market.
The takeaway from the report remains the same: notable supply constraints continue to act as a drag on overall sales. The limited inventory — and the high prices on available inventory — is crimping affordability, particularly for first-time buyers; moreover, all prospective buyers are feeling affordability pressures from rising mortgage rates and home prices rising faster than income.
What to Watch for This Week
U.S. New Home Sales in April dropped 1.5% to a seasonally adjusted annual rate of 622,000. I am expecting to see the May number rebound and come in at 666,000.
Case Shiller Index data for April is likely to show the 20-city index up by 6.8% year-over-year matching the March number.
Consumer Confidence was measured at 128.0 in May and I anticipate that the June figure will pull back a little to 127.1.
The NAR Pending Home Sales Index for May will likely show some improvement from the 1.3% drop seen in April. Look for the index to have risen by 0.8%.
The third, and final, measure of U.S. GDP the first quarter of this year will show no revision from the 2.2% growth rate previously announced.
Income & Spending both rose in April with incomes up by 0.3% and spending up by 0.6%. Look for the May number to show both incomes and spending up by 0.4%.
The final Consumer Sentiment number for June will likely be revised down to 99.0 from the preliminary figure of 99.3.