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Overall
construction
spending in the
United States decreased by 1.7 percent during March, to a
seasonally adjusted and annualized rate (
SAAR)
of $856.7 billion. Public construction spending exhibited the largest decline (4.1
percent), and only private residential spending rose.
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Total
housing starts breached
the one million mark (
SAAR) in March, the first time since June 2008. That
milestone was achieved thanks entirely to multi-family starts rocketing up by
99,000 units (31.1 percent) to 417,000 units
SAAR.
Single-family starts slumped, however, falling by 31,000 units (4.8 percent) to
619,000 units.
“Underlying
trends remain largely consistent with a gradual housing market recovery,” enthused
Gennadiy
Goldberg,
U.S. strategist at TD Securities. “The ongoing recovery in
the housing market will translate into better
U.S. growth not only via a rebound in construction jobs,
but also due to the wealth effect [from] rising housing values.”
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March’s
“raw” starts agreed in large part with their seasonally adjusted counterparts.
Total unadjusted starts amplified the gain seen in February; both the single-
and multi-family categories rose (respectively, 7,600 units or 17.2 percent,
and 11,900 units or 53.6 percent). Starts were up 47.9 percent over
year-earlier levels.
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Sales
of new single-family homes advanced by a modest 6,000 units (1.5 percent) to 417,000
(
SAAR). The median price of new homes sold retreated,
however, by $17,900 (6.8 percent), to $247,000; the
average
price is at its lowest level since June 2012. Although the change in single-unit
starts (-31,000) was well below that of sales (+6,000), the three-month average
starts-to-sales ratio retreated to 1.48 in March.
We
don’t typically comment on non-seasonally adjusted sales, but
Lee Adler of the Wall
Street Examiner, recently did. “New house sales rose by 7,000 units to 40,000
in March,” Adler wrote. “This was better than last year's March gain of 4,000
units to 34,000, and better than the March 2011 gain of 6,000 to 28,000. Sales
are up 43 percent in two years. Wow.
“But
let's put this in perspective. It's still below the 48,000 units that were sold
in March 2008 in the middle of the housing market crash, the 120,000 units a
month during the bubble years, and the 80,000 units per month typical before
that….
“Even
with the Fed's massive mortgage rate subsidy, sales have not surpassed 40,000
units per month. That's half, or less than half, the peak levels reached from
1997 to 2007.”
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Single-unit
completions advanced by 2.6 percent, while the inventory of new single-family homes
ticked higher in absolute terms (+3,000 units) but months-of-sales remained
stable at 4.4 months.
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Existing home sales
defied
MarketWatch’s
expectations of 5.03 million units when retreating instead to 4.92 million units
(-30,000 units or 0.6 percent,
SAAR) in March; as a result, the share of total sales
comprised of new homes ticked up to 7.8 percent. The median price of previously
owned homes sold in March pushed higher (by $11,100 or 6.1 percent), to $184,300.
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Housing
affordability withdrew from January’s near-record high as the median price
of existing homes for sale added $2,700 (+1.6 percent, to $173,800) in February.
Simultaneously,
Standard
& Poor’s reported that the 10- and 20-City Composites in the
S&P/Case-Shiller Home Price indices posted respective monthly gains of 0.4
and 0.3 percent from January to February (8.6 and 9.3 percent, respectively,
relative to a year earlier).
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"Home
prices continue to show solid increases across all 20 cities," says David
M. Blitzer, chair of the Index Committee at S&P Dow Jones Indices.
"The 10- and 20-City Composites recorded their highest annual growth rates
since May 2006; seasonally adjusted monthly data show all 20 cities saw higher
prices for two months in a row - the last time that happened was in early 2005.
"Phoenix, San Francisco, Las Vegas and Atlanta were the four cities with the highest year-over-year
price increases. Atlanta recovered from a wave of foreclosures in 2012 while
the other three were among the hardest hit in the housing collapse. At the
other end of the rankings, three older cities -- New York, Boston
and Chicago -- saw the smallest year-over-year price
improvements.
"Despite
some recent mixed economic reports for March, housing continues to be one of
the brighter spots in the economy. The 1Q2013 GDP report shows that residential investment accelerated from 4Q2012 and
made a positive contribution to growth. One open question is the mix of single
family and apartments; housing starts data show a larger than usual share is
apartments."
Just
as beauty is in the eye of the beholder, so too is the price recovery Blitzer
referenced. In our view, very little is going on as the 20-city composite index
continues to
undulate
in a fairly tight range with little indication of a desire break to the up or
downside. We are unsurprised by this development, and actually expect it to
continue until banks are done unloading the bulk of their shadow inventory.
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With
builders’
confidence
in the residential market
fading
because of “increasing costs for building materials and rising concerns about
the supply of developed lots and labor,” the number of permits applied for nudged
lower on a
SAAR basis in March. Total permits fell to 907,000 units (-32,000
units or 3.4 percent); analysts had
expected
a rise to 942,000 units. The drop
resulted primarily because of the weakness in multi-family units (-34,000 units
or 10.0 percent, to 307,000 units); single-family units also fell by a more modest
2,000 units (0.3 percent), to 600,000 units. Total permits were 12.5 percent
higher in March than a year earlier.
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Because
of
findings
that high student loan burdens are correlated with a lower likelihood of home
and car purchases, requirements on borrowers may be loosened in hopes of warding
off the threat of a
contracting
housing market. “Lenders and consumer advocates -- rarely on the same side of
the issue -- are now cautioning against down payment requirements,” wrote the
New
York Times. “They argue that such restrictions could limit lending, and
prevent lower-income borrowers from buying homes. They also contend that the
new mortgage rules put in place this year will do enough to limit foreclosures,
making down payment requirements somewhat superfluous.
“The
arguments seem to run contrary to long-standing beliefs about homeownership.
For decades, experts have emphasized the need for a sizable down payment -- a
rule of thumb being 20 percent -- on the premise that borrowers with a sizable
chunk of equity in a home are less likely to walk away when things get bad,”
the Times said.
We
agree with
Karl Denninger,
who observed that lower down payments increase lenders’ leverage. Denninger concluded
a recent post with “it is not surprising, of course, that the lending and
housing industries are pushing back on the imposition of these requirements.
After all, infinite leverage is great for prices and profits, so long as it
lasts.
“But
it is also inherently unstable and if 2008 taught us anything it should have
taught us that while it's perfectly ok for individuals to take such risks, when
those individuals and firms seek to or actually do transfer that risk to
the public as a whole via taxpayer bailouts or subsidies we must, as a
body politic refuse”
(emphases in the original).
The foregoing comments represent the
general economic views and analysis of Delphi Advisors,
and are provided solely for the purpose of information, instruction and
discourse. They do not constitute a solicitation or recommendation regarding
any investment.
