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Washington D.C.- Housing data is in giving us a look at some concerning characteristics as well as what has also been a prosperous past year for the real estate markets. We will dive into New Home Sales, Pending Home Sales, Case-Shiller Home Price Index, Housing Starts, Building Permits, Inflation, builders stonewalling on lumber, Affordable Housing, Debt Ceiling and the current political climate as “transitory inflation” is now under a microscope.
New Home Sales
US New Home Sales Fall for 3rd Month
Housing market data for June 2021 show new single-family home sales in the United States fell 6.6 percent to a seasonally adjusted annual rate of 676K, the third consecutive decline and the lowest level since April last year, as rising material costs continue to strain buyers’ affordability. The figures are in comparison to market forecasts of 800,000 units. Sales declined in the Northeast (-27.9%), the South (-7.8%), and the West (-5.1%), but increased in the Midwest (5.7 percent ). The median price of a home sold increased to $361,800, up from $341,100 a year ago. There were 353 thousand available new home sales in June, up from 330 thousand in May.
In May US New Home Sales at 11-Month Low
In May 2021, new single-family home sales in the United States fell 5.9 percent month over month to a seasonally adjusted annualized rate of 769 thousand, well below forecasts of 870 thousand. It is the lowest reading in a year, as rising material costs put upward pressure on buyers’ affordability. Southern sales fell 14.5 percent, while the Midwest remained flat. In comparison, the Northeast (33.3 percent ) and the West experienced increases (6.7 percent ). The median price of a home sold increased to $374,400, up from $317,100 a year ago. There were 330 thousand available new home sales in May, up from 315 thousand in April.
US New Home Sales Disappoint In April
In April 2021, new single-family home sales in the United States fell 5.9 percent month over month to an annualized rate of 863 thousand, well below forecasts of 970 thousand, owing to soaring prices caused by rising material costs. March’s reading was also revised downward sharply, from 1,021 thousand to 917 thousand. The Northeast (-13.7 percent), the Midwest (-8.3 percent), and the South (-8.2 percent) all saw declines in sales, but the West saw an increase (7.9 percent). The median price of a home sold increased to $372,400, up from $310,100 a year ago. There were 316 thousand available new home sales in April, up from 304 thousand in March.
Pending Home Sales
US Pending Home Sales Unexpectedly Fall
Pending home sales in the United States fell 1.9 percent year on year in June 2021, the first decline in four months, as a result of rising prices. Only the Northeast region saw an increase in contract signings on an annual basis. Monthly pending home sales also fell 1.9 percent, following an all-time high of 8.3 percent in May. “Since January, pending sales have fluctuated, indicating a market turning point. While buyers remain interested and desire to own a home, some are retreating due to record-high home prices. The slight slowdown in sales is largely the result of the massive increase in home prices. The Midwest region has the most affordable housing costs, and as a result, has seen higher sales activity in recent months than other regions “, according to Lawrence Yun, chief economist at the National Association of Realtors. According to last month’s report, sales were up 13.1 percent year over year in May 2021, following a record 51.7 percent increase in April, owing to a low base effect from last year, when sales fell at a record pace due to the pandemic. Each of the four US regions experienced year-over-year growth. On a monthly basis, pending home sales increased by 8%, beating expectations for a 0.8 percent decline and pushing the index to its highest level since 2005 for the month of May. “The housing market is attracting buyers as mortgage rates have fallen below 3% and as listings have increased. Despite a series of roadblocks over the last year, including an unprecedented pandemic, record-high prices, and record-low inventory, buyers are still lining up at a breakneck pace. While these impediments have contributed to pricing out some would-be buyers, the country’s record-high aggregate wealth as a result of the rising stock market and rising home prices is clearly providing funds for home purchases “, according to Lawrence Yun of NAR.
Case-Shiller Home Price Index at Record High
In May 2021, the S&P CoreLogic Case-Shiller 20-city home price index in the United States increased 17% year over year, bringing the index to a record high. This compares to an upwardly revised 15% growth rate in the previous month and 16.4% market expectations. Phoenix (25.9 percent) saw the largest increase in prices among the index’s 20 cities, followed by San Diego (24.7 percent) and Seattle (24.7 percent) (23.4 percent). “The US housing market’s strength is being fueled in part by potential buyers migrating from urban apartments to suburban homes in response to the COVID pandemic. May’s data support this hypothesis. This increase in demand could simply be an acceleration of purchases that would have occurred regardless over the next several years. Alternatively, a secular shift in locational preferences could have resulted in a permanent shift in the housing demand curve “, according to S&P DJI Managing Director Craig J. Lazzara.
Housing Starts
US Housing Starts at 3-Month High
US housing starts increased by 6.3 percent mom to a seasonally adjusted annual rate of 1.643 million in June 2021, the highest rate in three months and above forecasts of 1.59 million, on the back of strong buyer demand, rising material costs, and a labor shortage. Single family housing starts increased by 6.3 percent to 1.16 million, while multifamily housing starts increased by 6.8 percent to 0.474 million. The West (12.6 percent ) and the South (9.7 percent ) saw increases in new home construction, but the Midwest (-7.5 percent ) and the Northeast saw declines (-9 percent ). The news is slightly better following last month’s below-forecast report of starts increasing by 3.6 percent to 1.572 million annualized units in May 2021, following a downwardly revised 1.517 million in April and forecasts of 1.63 million as builders attempt to replenish inventory in the face of rising materials costs and a shortage of qualified workers. Single family housing starts increased by 4.2 percent to 1.098 million, while multifamily housing starts increased by 4 percent to 0.465 million. Starts increased 29.9 percent in the Midwest, 3.8 percent in the South, and 1% in the West, but fell 22.4 percent in the Northeast. April reports were quite depressing, falling 9.5 percent to an annualized rate of 1.569 million in April 2021, down from a near 15-year high of 1.733 million last month and well below market consensus of 1.71 million, owing to rising lumber and other material costs and labor shortages. Single-family housing starts fell 13.4% to 1.087 million, while units in buildings with five or more units increased 4% to 470 thousand. Housing starts decreased by 11.5 percent to 804 thousand in the South and 34.8 percent to 193 thousand in the Midwest, but increased by 9.0 percent to 400 thousand in the West and Northeast (6.2 percent to 172 thousand)
Building Permits
US Building Permits Fall to 8-Month Low
Building permits in the United States fell 5.1 percent from a month earlier to 1.598 million seasonally adjusted annual rate in June 2021, falling short of market expectations of 1.7 million. Building permits fell for the third consecutive month, reaching their lowest level since October 2020. Authorizations for single-family dwellings fell 6.3 percent to 1.063 million, while permits for the volatile multi-segment fell 2.6 percent to 535 thousand. Permits decreased in all regions: the South (-3.0% to 871 thousand); the West (-7.4% to 376 thousand); the Midwest (-6.7 percent to 208 thousand); and the Northeast (-6.7 percent to 208 thousand) (-8.3 percent to 143 thousand)
Permits have been an unwelcome statistic over the last three months. In May, building permits in the United States fell 3.0% month over month to a seasonally adjusted annual rate of 1.681 million in May 2021, marking the second consecutive decline and falling short of market expectations of 1.73 million. Permits for single-family dwellings fell 1.6 percent to 1.130 million, while permits for the volatile multi-segment fell 5.8 percent to 551 thousand. Permits fell across the board: in the South (-2.3 percent to 897 thousand); in the West (-3.1 percent to 406 thousand); in the Midwest (-2.6 percent to 222 thousand); and in the Northeast (-2.6 percent to 222 thousand) (-7.1 percent to 156 thousand).
April also fell short of expectations, increasing only 0.3% from a month earlier to a seasonally adjusted annual rate of 1.76 million in April 2021, down from 1.755 million the previous month and below market expectations of 1.77 million. Permits for the volatile multi-segment increased 8.9 percent to 611 thousand units, while single-family authorizations fell 3.8 percent to 1.149 million units. Permits fell in the Midwest (-9.9% to 228 thousand) and the West (-4.1% to 421 thousand), but increased in the Northeast (8.4% to 186 thousand) and the South (3.9 percent to 943 thousand)
Conclusion
Disappointing numbers are being sent in but signs of tremendous backlogs are still mounting. A summer recession may soon be over as demand will have to take over this fall as we move towards September starts. The “summer stone wall” on not purchasing lumber by builders this summer is showing some sign of a minimal retreat by the lumber industry. Builders still have to wait for on the ground inventory of lumber at yards across the country to sell out at the high purchase prices before lessor costing inventory is shipped in. Forward pricing contracts for delivery of lumber next year are the only items showing much savings. Short term savings on lumber may be an all around miss, never to be seen by builders, if fall starts magnify greatly.
Affordable housing backlogs , nearly 7 million, are growing by the day with inflation also effecting the Biden administrations affordable housing goals. Low end home buyers are priced out of the market completely along with no inventory. Multi-family affordable housings units needed is in the several million and counting without an end in site. The data has brought high tension meetings by vocal officials in recent days with Democrats looking for a way to get desperately needed affordable homes and units to market quickly as they seem to be scrambling. During a July 14th House Financial Services Committee on monetary policy and the state of the economy a boiling Maxine Waters pressured and grilled Federal Reserve Chairman Jerome Powell on inflation and the link to the now less affordable housing. Waters asked Powell if a influx in new affordable housing available to the consumer would lesson inflation. After a few brief stalls he answered yes giving Waters hope and urgency for re-introducing the Housing is Infrastructure Act this week “to ensure that Congress finally makes long overdue investments in the housing market. This bill would provide a historic investment of more than $600 billion to ensure that affordable housing is available all across the country.” said Waters.
Pipeline work for developments as well as housing has been strong, very strong. The Legal Shield “Housing Construction” and “Housing Sales” indices reported on climbed for a 3rd straight month aligning with data received from the AIA Architectural Billing Index which has reported near record highs for a second time. The ABI score, a composite average of demand and new signed contracts, hit 57.1 in June (any amount over 50 represents an increase from the month prior, any number under 50 is a decrease). Although less exciting than the 58.5 figure in May, it still represents a positive growth. That’s now the fifth consecutive month in a row.
Debt Cieling Shut down Looming
It was nice while it lasted — two years was about the right length of time. The U.S. has no debt limit at the moment.
However, that finishes on Saturday.
Beware: This round of ugliness and brinkmanship will result in the debt ceiling being raised (not abolished) some time this fall. To sum up, the overall picture is that the debt ceiling cannot achieve its supposed objective of influencing government borrowing. Bills passed by Congress and signed into law are binding under the law, and the debt ceiling neither empowers nor constrains their enactment.
In order to legally follow the law of the land, the Treasury must resort to borrowing additional money from the public.
It is impossible to consider the alternative — the default — . As of right now: Under the terms of the Bipartisan Budget Act of 2019 the debt ceiling comes back into force on August 1, at exactly the level of the national debt.
The point they’re making is that In a letter to Congress last week, Treasury Secretary Janet Yellen urged members to “protect the full faith and credit of the United States by acting as soon as possible.”
Holding your breath is futile. Congress is primarily concerned with the infrastructure bill at the moment. No one has tackled the debt ceiling yet, in part because Treasury has approximately $450 billion in cash on hand. Because of the threat of the pandemic, the Treasury plans to take “extraordinary measures in order to prevent the United States from defaulting on its obligations,” in order to avoid the country defaulting on its debts.
A Bipartisan Policy Center projection puts a “drop dead date,” somewhere in November, but no one wants this saga to drag on for that long. It looks like Congress will recess until September, and no one expects any movement on the debt ceiling until October. This is a reasonable prediction, according to Axios’s Alayna Treene, as the most likely scenario is that Congress will delay the debt ceiling hike by a few months before raising it in a bigger way around Christmas.
