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Top Housing Markets in 2013
Jonathan Dienhart and Ken Lee / Hanley Wood / August 27, 2012
Now that our latest Home Building Outlook Report is available, we thought we’d give a preview of what we see as the strongest home building markets in 2013. The outlook ranking of these markets is based upon expectations of increase in new home sales combined with a measure of economic health that takes into account a variety of factors. As a result, Salt Lake City comes in first place for next year, with expectations of 12% growth in new home sales and a very high rating in market health. We re-rank the top 100 markets for the year ahead every quarter, as well as provide our subscribers with a data file containing statistics for all 940 MSAs across the country. A subscription to the Home Building Outlook provides a truly massive amount of data and analysis, and single issue purchase is also available. Click here for more information and a sample excerpt.
In other housing news, data released last week by the Census Bureau and the National Association of Realtors showed that both new and existing home sales improved in July. Record-low mortgage rates and slowly improving economic trends have been a catalyst for the housing market which has helped buoy builder confidence. The NAHB’s Housing Market Index rose to its highest levels since February 2007 in August.
New home sales activity in July is the highest it has been since April 2010 when the federal homebuyer tax credit expired. Existing home sales in July rebounded to its highest levels since October of last year. However, the increase in demand came at the expense of slightly lower pricing trends. Both median new and existing home prices declined slightly in July. Pricing trends in the new home market are currently weaker than those in the existing home market. New home prices are still experiencing annual losses while existing home prices are noticeably higher than they were this time last year.
Improving labor market trends and record-low mortgage rates have been amongst the main drivers for housing activity in recent months. However, both have turned around slightly against the market’s favor in the past couple of weeks and it will be important to keep an eye on how these developments may affect housing demand going forward. Mortgage rates have increased for the past four consecutive weeks while initial jobless claims increased this past week to its highest levels in five weeks.
First-time unemployment claims increased by 4,000 to a seasonally adjusted figure of 372,000 in the week ended August 18th from an upwardly revised figure of 368,000 jobless claims in the previous week. This is the second straight week that initial jobless claims have increased and the highest they have been in five weeks.
The leading index increased in July to a reading of 95.8 which is a 0.40 point gain from June levels. The index is up 1.10 points from its levels six months ago when it stood at 94.7 in January. The leading index is up 1.2% from its levels six months ago. The recent choppiness in the leading index over the past four months suggests an uncertain economic outlook for the months ahead. Eight out of the ten components showed month-over-month improvement from June levels. Compared to six months ago, six out of ten indicators posted increases.
The consumer price index declined in July due to lower prices in energy, transportation, and education/communication. Headline inflation declined 0.2% from last month on a non-seasonally adjusted basis while remaining unchanged on a seasonally adjusted basis. The core-CPI, which economists watch as a closer indicator of inflation because it excludes often volatile food and energy prices, increased 0.2% compared to June levels on a seasonally adjusted basis while remaining flat on a non-seasonally adjusted basis. CPI increased 1.4% from this same period last year while core CPI increased 2.1% year-over-year in July. This is the tamest annual gain for headline inflation since November 2010.
After three months of dismal job growth, the labor market rebounded nicely in July. The U.S. economy added 163,000 non-farm payrolls in July on a seasonally-adjusted basis which is the strongest job growth in any month since February. The labor market recorded three months of job growth below 100,000 payrolls before July’s recovery. The U.S. economy has experienced payroll gains for 22 straight months.
Increased payroll growth did not help chip away at the nation’s unemployment rate. The U.S. jobless rate increased to 8.3% in July from 8.2% in June. This figure equates to approximately 12,794,000 unemployment people which is 45,000 more than last month. A larger increase in the labor force offset payroll gains last month. More people are returning to look for work now that economic conditions have stabilized and the job market seems to be improving. The unemployment rate is the highest it has been since February. The underemployment rate, which includes those that are looking for work but have given up and those who are working part-time but would prefer to be working full-time, increased from the previous month to 15.0% in July from 14.9% in June.
Sales activity in both the new and existing home markets picked up in July. However, median home prices in both segments declined. Current trends still show a stable environment where prices have remained relatively stable and demand is slowly picking up due to record-low mortgage rates and improving economic trends.
New home sales in July increased 3.6% from the previous month to a seasonally-adjusted annual pace of 372,000 units. The pace of new home sales is back to its highest levels since April 2010. New home sales are up 25.3% from the 297,000 units in July 2011.
In July, median new home prices declined to $224,200 from a June figure of $229,100. This is the second straight month that new home prices have declined and the lowest they have been since January. Median new home prices are down 2.5% from this time last year. This is the second straight month that new home prices have experienced year-over-year declines.
Lower home prices along with record-low mortgage rates helped push new home affordability in July to a new all-time record high. The new home affordability ratio increased to 63.5% in July from 62.1% in June. This is the fourth consecutive month that new home affordability has increased.
New home inventory declined to 142,000 units in July on both a seasonally adjusted and non-seasonally adjusted basis. This is a new all-time record low for new home inventory levels. Months of inventory declined from last month due to better sales activity and a slight decrease in supply. Seasonally adjusted months of new home inventory decreased to 4.6 months in July from 4.8 months in June. Months of new home inventory are at its lowest levels since October 2005.
Existing home sales increased in July to a seasonally-adjusted annual rate of 4.47 million homes which is 2.3% higher than the 4.37 million homes in June. Existing home sales are rebounding off their lowest levels since October 2011 last month in June. Sales of existing homes are up 10.4% from this time last year when it stood at 4.05 million homes. This marks the seventh consecutive month that existing home sales have posted year-over-year gains. Single-family resale activity increased 2.1% last month to 3,980,000 units while condo and co-op sales increased 4.3% to 490,000 units.
Home prices eased slightly with the increased demand in July. Median existing home prices declined to $187,300 from $188,800 in June. This decline comes after existing home prices increased for the previous five straight months to their highest levels since September 2008. Median existing home prices are still 9.4% higher than this same time last year. This marks the fifth consecutive month that home prices have posted year-over-year gains.
Inventory of existing homes in July increased 1.3% to a preliminary 2,400,000 units from a downwardly revised 2,370,000 units in the previous month. Despite this month’s slight increase, the supply of existing homes has been on a steady decline over the past year. The number of existing homes for sale is 23.8% lower than it was compared to this time last year. At the current sales pace, there are 6.4 months of existing home supply on the market compared to 6.5 months in June.
National average mortgage rates increased from the previous week to 3.66% with an average 0.7 points in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on August 23rd. This is the fourth consecutive week that rates have increased following four straight weeks of reaching new all-time record lows before that. This is the highest rates have been since the end of June. Rates have averaged under 4.0% for 22 consecutive weeks.
In the week ending August 17th, the Mortgage Bankers Association’s seasonally-adjusted purchase index increased 0.85% from the previous week. The purchase index recovered slightly last week after declining in the previous five consecutive weeks.
Residential construction activity in the U.S. fell in July due to a pullback in the single-family segment. Housing starts declined 1.1% from the previous month to a seasonally-adjusted annual rate of 746,000 units compared to a downwardly revised June figure of 754,000 units. Total housing starts in May and June were revised lower by a combined 11,000 units. Single-family housing starts dropped 6.5% from last month to a seasonally-adjusted annual rate of 502,000 units. This is the lowest they have been since March. Multi-family starts (5+ units) jumped 9.6% from last month to a seasonally-adjusted annual rate of 229,000 units in July. This is the highest they have been since April. High demand for rental apartments across many areas in the country has kept multi-family residential construction activity elevated.
Despite the slowdown in housing starts, building permit activity continued to increase in July which suggests that residential construction activity will remain busy in the coming months. Total building permit activity increased 6.8% from the previous month in July to a seasonally-adjusted annual rate of 812,000 units. Single-family permit issuance increased 4.5% from the previous month to a seasonally-adjusted annual rate of 513,000 permits issued in July. This is the fourth consecutive month that single-family permit activity has increased and the highest it has been since March 2010. Total multi-family permit activity increased 11.2% from last month to a seasonally-adjusted annual rate of 299,000 units in July.
The National Association of Homebuilders’ housing market index increased two points from the previous month to a reading of 37 in August. This is the highest the housing market index has been since February 2007. The housing market index has now increased for four consecutive months. Record-low mortgage rates, stronger home sales activity, and steady economic improvement continued to help support builder confidence this month.
For additional market-level data and analysis please visit our website at http://www.housingintelligence.com.