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March 29, 2012
Eye on the Economy
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Housing Signals Suggest Temporary Pause Amid Improving Long-Term Trends

Despite positive economic news as the year began, data released in recent weeks suggest that the long-run improvement in housing is taking a breather.

New home sales for February declined 1.6% from the January tally and 6.8% from an upwardly revised total for December 2011, the best sales month since the first-time home buyer tax credit expired. NAHB survey data further indicate that cancellation rates for new home sales have been climbing, which suggests that tight credit conditions and faulty appraisals are taking a toll.

Nonetheless, the three-month moving average for new home sales remains near post-Great Recession highs. And inventories of completed and unsold new homes (54,000) reached historic lows, with the months-supply measure at 5.8.

Growth in housing construction slowed in February. According to Census data, housing starts fell almost 10% compared to elevated January totals, which were likely inflated by unseasonably warm weather throughout most of the nation.

Multifamily starts continued to improve. At a seasonally adjusted annualized rate of 233,000, starts for units in buildings with five or more units were up 29% from January and were more double the rate recorded in February 2011.

The latest government data for market absorption rates for both for-sale and for-lease multifamily housing reached levels unseen since 2005. The three-month absorption rates for rental apartments completed during the third quarter of 2011 and leased during the final quarter of the year reached 67%. The corresponding absorption rate for condominiums and co-operative units showed even more improvement, coming in at 80%.

Existing home sales reporting from the National Association of Realtors (NAR) mirrored that of new construction. Existing single-family home sales for February were slightly down (1%) from the previous month but up more than 9% year-over-year. Sales of existing condominiums and co-operatives were unchanged from January but up nearly 4% from this time last year.

NAR’s February pending home sales measure also declined slightly from January, but remains more than 9% higher relative to early 2011.

Nonetheless, the long-term improvement in housing conditions continues to take hold in a growing number of local markets. The NAHB/First American Improving Markets Index increased once again in March, now standing at a count of 99. The index now classifies one-quarter of all metropolitan areas as “improving” under a metric that takes into account home building, house prices and local job growth.

Moreover, businesses are adding workers in the construction sector, which suggests continued growth in construction spending this year. Net sector employment rose 17,000 in February, which is a good start for 2012. Last year was the first since 2006 for which the construction sector added net jobs, albeit only 67,000 for all of 2011.

The improving economy may be causing some increases in certain commodity prices, a concerning trend for businesses operating in a tight credit environment. Data from the Bureau of Labor Statistics indicate that gypsum prices rose 5% in each of the months of January and February. Rising gasoline prices helped push the energy component of the Consumer Price Index (CPI) up 3.2% in February. 

Nonetheless, overall inflation indicators remain relatively tame, with the February reading of the Producer Price Index up 0.2% and the CPI increasing 0.4%.

Other analysis and information appearing on NAHB’s Eye on Housing economics blog include:

  • Despite historic declines in housing prices, real estate owners continue to pay near-record amounts of property tax revenue according to an NAHB analysis of state and local government data. Property tax receipts remain the single largest source of state and local tax collections.
  • NAHB’s semi-annual Construction Forecast takes place April 25.

Read more in the following posts from Eye on Housing.


Join Chief Economist David Crowe and other economic experts on April 25 for the semi-annual construction forecast webinar. Posted: March 27

The NAR Pending Home Sales Index, a forward-looking indicator based on contracts signed, decreased 0.5% in February. However, the index is up 9.2% from the same period one year ago. Posted: March 26

Home prices for the US overall were essentially flat in January and down less than 1% year over year. Posted: March 23

Despite a decline of 1.6% from January’s numbers, the three-month moving average of new home sales for February remains near two-year highs. Posted: March 23

Despite housing price declines, property taxes remain the largest source of local government revenue. For 2011, about $469 billion in taxes was paid by property owners, only down half a percent over 2010. Posted: March 22

February 2012 existing home sales were up 8.8% from a year ago. The total housing inventory at the end of February increased to 2.43 million existing homes for sale, a 6.4 month supply. Condominium and co-op sales were up 3.9% from a year ago. Posted: March 21

The PPI for finished goods rose just 0.2% in February, exclusive of volatile food and energy prices. Gypsum prices have been up 5% in each of the last two months. Posted: March 20

Net job creation for the construction sector came in was at 17,000 in February. This is a good start for the year, given that total net hiring for construction in 2011 the first year since 2006 with sector job gains -- totaled 67,000 positions. Posted: March 21

NAHB chief economist David Crowe examines the HMI for March and what it means. Posted: March 20

Dr. David Crowe discusses the Improving Market Index reaching a tally of 99. Posted: March 20

Single-family housing starts declined almost 10% in February from an elevated January due to abnormally warm weather all over the country. Posted: March 20

In February, the rate of starts for buildings with five or more apartments was 233,000, a 29% increase from January and more than double the starts rate for February 2011.  Posted: March 20

The Consumer Price Index jumped 0.4% on a month-to-month basis during February 2012, with energy prices up 3.2%. Posted: March 19

Absorption rates rose for apartments and condominiums completed during the third quarter and leased or sold during the last quarter of 2011. The share of LIHTC units remains high. Posted: March 16

The March NAHB/First American Improving Markets Index stands at 99 markets,  or more than a quarter of all metropolitan areas. Posted: March 16

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