Economic Housing Data on Upward Trajectory for Central Virginia
The Blue Ridge Home Builders Association hosted Dr. David Crowe, the Chief Economist for the National Association of Home Builders (NAHB) for their annual breakfast and Economic Forecast Meeting for the Charlottesville and Central Virginia Region.
Dr. Crowe presented past economic data as well as projected economic projections for both the United States and for the Central Virginia region to the members of the Blue Ridge Home Builders Association at their annual breakfast meeting held at the Glenmore Country Club.
According to the NAHB, while recent economic reports suggest that home building took a pause at the beginning of 2013, leading indicators point to more growth for housing in the months ahead.
Per data from the Census Bureau, housing starts were down 8.5% in January. However, all of the loss was in the multifamily segment, where construction fell from an unusually high annualized rate of 365,000 in December to a more steady 277,000 rate in January. On a year-over-year basis, starts of multifamily units in properties with five or more units remain up 35%. Single-family starts were virtually unchanged in January at a 613,000 rate, up 0.8%from December.
Narrowing in on the custom home building market, roughly defined as owner-built or owner-hired contractor-built homes, quarterly Census data indicate a declining market share as other forms of home building pick up. As of the end of 2012, custom home building fell to a quarterly total of 30,000 starts, placing the one-year moving average of market share of total single-family starts at 24%. This is down from the cycle high of 31.5% set during 2009, although the share remains elevated compared to historical conditions.
The NAHB/Wells Fargo Housing Market Index (HMI) continued its pause in February with an index value of 46, down one point from the December and January level of 47. Builders remain just shy of the 50 mark, at which a majority of builders are optimistic versus those that are not. Nevertheless, the index rose consistently from April to December 2012 as builders saw more serious buyers in their models and offices.
Consistent with this long-run improvement of building conditions, housing permits continued their steady increase to a high not seen since mid-2008. The Census Bureau reported total permit activity was up 1.8% and the rise was evenly spread across single-family, up 1.9% and multifamily, up 1.5%.
New home sales increased significantly in January, with the months’-supply measure of inventory dipping to the lowest value in eight years as housing demand continues to return. The Census Bureau reports that on an annual seasonally-adjusted basis, new homes sold at a 437,000 pace in January, up 15.6% from December and 28.9% from a year ago. The improvement was broad based in all four Census regions. The surge in sales and already low inventories reduced the months’ supply to 4.1, the lowest since March 2005.
“Housing is finally doing its job of being the agent of recovery.”
– Dr. David Crowe
Existing home inventory is down as well. Per the National Association of Realtors (NAR), existing home sales increased 0.4% in January from a downwardly revised level in December, and were up 9.1% from the same period a year ago. Total housing inventory at the end of January decreased 4.9% from the previous month to 1.74 million existing homes for sale. At the current sales rate, the January 2013 inventory represents a 4.2-month supply compared to a 4.5-month supply in December, and a 6.2-month supply of homes a year ago. The January housing supply is the lowest since the 4.2-month supply reported in April 2005.
And the NAR Pending Home Sales Index (PHSI) foreshadows more growth. A forward-looking indicator based on signed contracts of existing home sales, the PHSI increased 4.5% in January 2013 to 105.9, up sharply from the downwardly revised 101.3 in December. The January 2013 PHSI was 9.5% higher than the same period a year ago and is the highest since April 2010 when the home buyer tax credit was expiring. Prior to the tax credit, the last time the PHSI was this high was the 107.9 level reached in February 2007.
Home sales are certainly receiving a boost from continued improved housing affordability conditions. Low interest rates helped produce a slight gain in nationwide housing affordability amid relatively stable house prices in the final quarter of 2012. The NAHB/Wells Fargo Housing Opportunity Index (HOI) rose to 74.9%, up from 74.1% in the third quarter. The HOI is the share of new and existing homes sold in a quarter affordable to a family earning the median income. An HOI of 74.9 means that 74.9% of all homes sold in the last three months of 2012 were affordable to families earning the national median income ($65,000).
Low inventories and improved housing demand conditions inevitably mean home prices are rising. The monthly Federal Housing Finance Agency national price indexes were 1.4% for the last quarter of 2012 and 5.9% for the year. The quarterly Case-Shiller national indexes were up 2% for the quarter and 7.3% for 2012.
“Housing is growing much faster than other components of the economy and it’s helping bring the rest of it up.”
Rising prices are also likely connected to improved foreclosure statistics. For example, recent data from the Mortgage Bankers Association National Delinquency Survey indicated that the foreclosure starts rate fell to 0.7% at the end of 2012, the lowest reading since the first half of 2007 and the largest quarterly decline ever recorded in the survey. However, rising home prices may affect the housing affordability and the level of investor and cash-buyer housing demand in the months to come.
Home prices are not the only costs going up. Recent Producer Price Index data from the Bureau of Labor Statistics show the prices for certain building materials have risen sharply. Gypsum prices rose 12% in January from December, mirroring a steep increase at the beginning of 2012, and are now 27% above year-ago levels. The pattern of price increases for wood products has more closely reflected improvements in the housing market. Producers of gypsum and OSB have blamed the recent price increases on reduced productive capacity (mothballed plants and equipment) following the long drought in housing.
Amid these market updates, NAHB recently took a deeper dive on a few analytical topics. New research examines the role that the wave of recent refinancing activity has had on household mortgage debt burdens. In fact, refinancings now account for 72.5% of all mortgage applications. Since 2010, the share of such refinanced mortgages that yield a lower loan amount has exceeded those that produce at least a 5% larger amount. Combined with lower interest rates, these actions have been part of the deleveraging process that has helped heal household balance sheets.
David Crowe is Chief Economist and Senior Vice President at the National Association of Home Builders (NAHB). Dr. Crowe is responsible for NAHB’s forecast of housing and economic trends, survey research and analysis of the home building industry and consumer preferences as well as microeconomic analysis of government policies that affect housing.
Dr. Crowe is also responsible for the development and implementation of an innovative model of the local economic impact and fiscal cost of new home construction, which has estimated the net impact of new housing in over 500 local markets. Past research has concentrated on home ownership trends, tax issues, demographics, government mortgage insurance, local land use ordinance impacts and the impacts of housing on local economies.
Before becoming NAHB’s Chief Economist, Dr. Crowe was NAHB’s Senior Vice President for Regulatory and Housing Policy. Prior to NAHB, Dr. Crowe was Deputy Director of the Division of Housing and Demographic Analysis at the U.S. Department of Housing and Urban Development.
He has served on federal advisory committees to the Census Bureau and to the U.S. Department of Housing and Urban Development.
Dr. Crowe holds a PhD in Economics from the University of Kentucky.
The event was sponsored by Union First Market Bank.