New data on US housing inventory, home prices and sales, and distressed mortgages was released this week.
Mixed messages from US housing data released in June are being studied by home buyers, sellers, and industry experts. Mid-year releases issued from the National Association of Realtors, S&P/Case Shiller, Trulia, and other housing analysts show that the housing recovery is on track. Other reports issued simultaneously indicate that the US housing recovery has slowed. Both are accurate; signals are mixed.
US Housing Market
Mid-2014 Data and Analysis
Moderate slowdown is seen as positive.
Dr. Jed Kolko, Trulia chief economist explains, “Sales are picking up but prices are slowing down, and both of those are a good thing.”
Key performance indicators show that inventory is tight in a lot of markets, however, prices rose less than expected. In fact, prices rose at the single slowest pace since March 2013. Foreclosures are down 40 per cent year-over-year, which is good news, as that’s a necessary part of housing recovery.
The housing market is fundamentally sounder than it has been in years. The number of homes entering foreclosure per quarter is back down to the pre-crisis levels of 2005-2006, notes Torsten Slok, chief international economist of Deutsche Bank Securities. Distressed home sales accounted for only 11 per cent of sales in May, down from 18 per cent a year earlier.
Capital Economics, CoreLogic, and Barclays predict that average housing prices will continue to rise at eminently sustainable mid to high single-digit percentage rates for the coming year.
Peter Coy, writing in Bloomberg Businessweek’s global economics section Thursday, says recent measures of housing activity are reason to call off the housing-bubble alert.
US house prices rose in 2012 and 2013 at a pace as extreme as anything seen during the disastrous housing bubble of the last decade. But Coy says CoreLogic’s measurement of house-price growth dropping below double digits, to 8.8 per cent, from May 2013 to May 2014 is a healthy correction.
Supporting his upbeat outlook on housing, Coy points out the history demonstrating that home buying is more sensitive to the health of the job market than to interest rates. Thursday’s June jobs report by the Bureau of Labor Statistics – showing that the US economy added over 200,000 jobs for the fifth consecutive month – should be very encouraging news indeed.
Meanwhile, CoreLogic announced Tuesday that home prices in May were up 8.8 per cent from a year earlier. That’s still a big gain, but CoreLogic Chief Economist Mark Fleming notes in a report that it’s almost 3 percentage points lower than the growth rate seen three months earlier, and it’s the lowest annual change in 18 months.
“We are still under-building compared to population growth,” homebuilding analyst Stephen Kim of Barclays wrote in a recent report. From a low of 554,000 in 2009, annual housing starts reached 927,000 last year, and Barclays predicts they will rise by 200,000 annually, reaching 1.7 million by 2017.
For it’s part, nonresidential construction spending expanded in May for the second consecutive month (based on revised data), according to a Tuesday release from the US Census Bureau. Nonresidential construction spending rose 1.1 per cent on a monthly basis in May and has increased 6.4 per cent on a year-over-year basis. Spending for the month totalled US$596.2 billion on a seasonally adjusted, annualized basis. Additionally, nonresidential construction spending for April was revised upward from US$570.6 billion to US$589.9 billion.
“Nonresidential construction spending is now at its highest level since October 2009, though that does not account for the cost of inflation,” said Associated Builders and Contractors Chief Economist Anirban Basu in a release Tuesday. “Today’s release helps confirm that the winter decline in nonresidential construction spending was largely due to unusually harsh weather as opposed to shifting economic fundamentals.”
On the other hand, there are also fewer people owning homes. The national homeownership rate fell to a seasonally adjusted rate of 65 per cent in the first quarter, the lowest level in 19 years, according to Zillow Chief Economist Stan Humphries Monday. The household formation rate is also sluggish as younger people have been living with their parents longer. In the first quarter, new households formed at roughly one-third the normal pace.
Most new households are turning to rent, which has been rising despite the drop in home values. Since 2000, rents have grown by 52 per cent, twice the pace of wage growth over the same time. Currently, in 90 large metro markets, renters are spending more than 30 per cent of their income on rent.
Perhaps the most interesting data comes from the Japan Maritime Center, which announced total US imports from Asia of furniture and building materials and plastics used in construction rose to 971,678 standard containers in the first four months of this year, compared with 914,042 a year earlier, said Bloomberg Wednesday.
Thanks to the US housing boom, Asian manufacturers are shipping the most furniture and building materials by containers in seven years.
“The increase in shipments to the US is a plus for the container line business,” Ryota Himeno, an analyst at Barclays Securities Japan said by telephone to Bloomberg. “It’s one of the positive signs that the marine industry has been waiting for.”