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NAHB logo National Association of Home Builders
December 12, 2013
David Crowe
NAHB Chief Economist
Eye on the Economy
New Home Sales Rise in October

After dipping during the “pause” in September, new home sales rebounded in October. Some slowdown in housing was expected due to declines in consumer confidence and the uncertainty produced by the partial government shutdown. However, the October data add more evidence that the recovery for housing will continue into the new year.

For the economy as a whole, job creation continues to be positive, although weaker than hoped. The Bureau of Labor Statistics reported that November payroll employment grew by 203,000, plus an additional 8,000 for prior month revisions. The job openings rate continues to rise, as jobs are posted but not filled. This is particularly true in construction. In October, there were 124,000 unfilled positions in construction firms – the highest level since May 2008.

Gross domestic product growth surprised on the upside for the third quarter, coming in at 3.6%. This was higher than the earlier estimate of 2.8%, but the bump in growth largely came from inventory investment: for 1.7 percentage points or nearly half the 3.6% total. As a result, NAHB expects growth to slow sharply in the final quarter of the year.

Against this economic backdrop, October new home sales showed strength after a weak September. Rising 25% from the September pace, the annualized rate for October came in at 444,000, reaching a level established earlier in the year. Months' supply totaled 4.9, the lowest inventory measure since the second quarter. In fact, for October the total inventory of completed, ready-to-occupy newly built homes remains low, at only 42,000 nationwide.

With respect to new home financing, Census data show that the cash share of new home sales totaled 7.37% during the third quarter, near the recent high of 7.89% of the third quarter of 2011. FHA-insured mortgages came in at 17% of the market for the third quarter. But interest rates remain low by historic standards. Data from the Federal Housing Finance Agency indicate that the average contract interest rate for October for newly built homes was 4.32%.

Looking at individual markets, the NAHB/First American Leading Markets Index rose slightly to a value of 0.86 in December, up from 0.85 in November. The index measures progress for employment, home prices, and home building based on normal market conditions. So the 0.86 measure indicates that nationwide, housing markets are operating at 86% of normal conditions. In December, 54 metros were at or above a value of one, meaning those markets had returned to or were above their last normal levels of activity. These markets were dominated by energy and agriculture states and smaller markets that did not see rapid declines in production and prices in recent years.

In other positive news for home builders, lending conditions for acquisition, development and construction (AD&C) loans continue to improve, although a considerable lending gap between demand for AD&C and current loans persists. NAHB survey data indicate that for the third quarter, only 9% of those surveyed reported that lending conditions deteriorated, with 28% noting improving conditions. And FDIC data show that the stock of outstanding AD&C loans grew nearly 5% during the second and third quarters of the year.

Overall, total private residential construction spending was up 17.8% from a year ago, a useful measure of the progress the housing recovery has made recently. Since market lows in June 2009, single-family construction spending is up almost 87%, multifamily 164%, and remodeling-related improvement spending 17%. Over the course of 2013, single-family spending is up 14%, multifamily 22%, and remodeling 3%.

In analysis news, economists at NAHB recently examined how comprehensive tax reform could affect business-related advertising and tax accounting, with a focus on construction firms. Additional analysis examined average electric utility bill by state and geographic breakdown of residential trade contractor employment after the Great Recession.

Eye on the Economy returns Jan. 8. For daily updates, visit the Eye on Housing blog.

Latest Posts

Construction Sector Job Openings Reach 5-Year High in October

The number of unfilled construction sector positions (124,000) reached a five-year high, according to the October BLS Job Openings and Labor Turnover Survey. Posted Dec. 10.

Advertising Expenses – On the Tax Reform Radar

An analysis of recent tax proposals dealing with advertising expenses. Posted Dec. 9.

The Employment Situation for November: The Fed’s Next Move is Getting Closer

Payroll employment expanded by 203,000 and the prior two months were revised for a net increase of 8,000. The pattern in job growth is beginning to look like the substantial and sustained improvement in the labor market. Posted Dec. 6.

Tax Accounting and Home Building: Tax Reform Impacts

A recent legislative draft would repeal the home construction contract exception in the nation’s tax code as part of comprehensive tax reform. Posted Dec. 6.

GDP Growth in the Third Quarter, Second Estimate – Inventory Investment, Blessing or Curse?

The Bureau of Economic Analysis released the second estimate of real GDP growth for the third quarter of 2013. Real GDP growth was revised upward to a seasonally adjusted annual rate of 3.6%. Posted Dec. 5.

Leading Market Index Up

The NAHB/First American Leading Markets Index rose slightly to .86 in December from .85 in November. The index measures progress back to and beyond the normal level of economic and housing growth. Posted Dec. 5.

Third Quarter: New Home Sales by Financing

For the third quarter of 2013, the share of cash purchases fell slightly to 7.37% from a revised 7.87% in the second quarter. The high point for cash purchases occurred in the third quarter of 2011 when the market share was 7.89%, only slightly higher than the third-quarter estimate. Posted Dec. 5.

New Home Sales Up

The October new home sales report from Census and HUD showed a 25% increase over a low September level. The 444,000 sales reported for October brings sales back to the levels established earlier this year. Posted Dec. 4.

Stock of AD&C Loans Up Nearly 5% In Past 6 Months

According to data from the FDIC, the outstanding stock of residential AD&C loans made by FDIC-insured institutions rose by $1.126 billion during the third quarter of 2013, a quarterly increase of 2.7%. Since the end of the first quarter, the net stock of outstanding AD&C loans is up 4.8%. Posted Dec. 3.

AD&C Credit Conditions Continue to Ease

Builders and developers continue to report credit easing for acquisition, development and construction (AD&C) loans, according to NAHB’s survey on AD&C financing. Posted Dec. 3.

Where are the Trades?

From 2006 to 2011, more than 1.5 million trade contractors left the market. This analysis provides a snapshot of the relationship between of residential and non-residential trade contractors as well as trade contractor employment across the nation. Posted Dec. 3.

Construction Spending Sees Slight Decline in October

Total private residential construction spending decreased slightly from the revised August and newly released September figures to a seasonally adjusted annual rate of $326.9 billion in October 2013. The current reading is a 0.6% decrease from the prior month and 17.8% higher than a year ago. Posted Dec. 2.

Average Monthly Electric Bill by State

Analysis of average monthly electric bills by state, with Hawaii having the highest and New Mexico the lowest. Posted Dec. 2.

Consumer Confidence on 3-Month Slide

Measures of consumer confidence continued to slide in November, falling for the third straight month. The Conference Board reported that the Consumer Confidence Index fell by 2 points on a month-over-month seasonally adjusted basis in October to 70.4. According to Thomson Reuters and the University of Michigan, the Consumer Sentiment Index fell by 1.2 points in November. Posted Nov. 27.

Interest Rates on New Home Loans Remain Stubborn

The average contract interest rate on conventional mortgages for new homes increased from 4.30% to 4.32% in October. Posted Nov. 26.

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