The first two months of the fourth quarter has seen consecutive months of increased existing home sales as reported by the National Association of Realtors This Week in Real Estate and rising inventory beginning to tame home price appreciation. Below are a few highlights from the third week of December that influence our business:
Existing Home Sales Increase for Second Consecutive Month
Existing-home sales increased in November, according to the National Association of Realtors, marking two consecutive months of increases. Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 1.9 percent from October to a seasonally adjusted rate of 5.32 million in November. Sales are now down 7.0 percent from a year ago (5.72 million in November 2017). Single-family home sales sit at a seasonally adjusted annual rate of 4.71 million in November. That is up from 4.62 million in October, but 6.7 percent below the 5.05 million sales pace from a year ago. Lawrence Yun, NAR’s chief economist, says two consecutive months of increases is a welcomed sign for the market. “The market conditions in November were mixed, with good signs of stabilizing home sales compared to recent months, though down significantly from one year ago. Rising inventory is clearly taming home price appreciation.” Existing-home sales in the West declined 6.3 percent to an annual rate of 1.04 million in November, 15.4 percent below a year ago.
Single-Family Starts Weak, Especially in the West
The pace of single-family starts declined for the third consecutive month as housing affordability concerns continue to weigh on the home construction market. Total starts posted a 3.2% increase due to gains for multifamily development. Total single-family and apartment construction starts are up 5.1% on a year-to-date basis, according to the joint data release from the Census Bureau and HUD. The November rate of single-family starts decreased 4.6% to a seasonally adjusted annual rate of 824,000. The steady decline for the pace of single-family construction mirrors recent weakness for the NAHB/Wells Fargo Housing Market Index (HMI), now registering a score of 56. Builders are concerned about housing affordability conditions due to the rise in mortgage rates and increasing construction and regulatory costs. However, rate declines over recent weeks should provide some support for the market in the coming months. On a year-to-date basis, single-family starts are 3.9% higher relative to the first eleven months of 2017. Single-family permits, a useful indicator of future construction activity, were flat in November and have registered a 5.2% gain thus far in 2018 compared to last year. Single-family construction is down 4% for the year in the Midwest. Single-family starts are up in the larger building regions of the South (3%) and the West (12%). Single-family construction is 4% higher in the Northeast (despite new home sales declines) due to relative strength in the not-for-sale, custom market in that region.
Builder Confidence Drops Four Points Amid Concerns Over Housing Affordability
Builder confidence in the market for newly-built single-family homes fell four points to 56 in December on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) as concerns over housing affordability persist. The NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” Although this is the lowest HMI reading since May 2015, builder sentiment remains in positive territory. Builders report that consumer demand exists, but customers are hesitating to make a purchase because of rising home costs. However, recent declines in mortgage interest rates should help move the market forward in early 2019. Looking at the three-month moving averages for regional HMI scores, the Midwest dropped two points to 55; the West and South both fell three points to 68 and 65, respectively; and the Northeast registered an eight-point drop to 50.