The following is an article written by Jon Dienhart and Ken Lee.
Despite the continuing trend of new homes comprising a shrinking share of total home sales, builders have managed to strategically focus their efforts and firm up pricing on a price per square foot basis. Our data feature this week, courtesy of Housing IntelligencePro, illustrates that after hitting a trough of $126 per square foot in 2009, new homes so far in 2011 are selling for $148 per square foot, a level not seen since 2007. Meanwhile, the share of total home sales captured by new homes continues to shrink, falling to only 8.6% so far this year. Typical resales have also declined from 63% in 2010 to 60% in 2011. Both new and resales have been offset by the continual stream of distressed property sales, with REOs growing from 27% of the market in 2010 to 31% so far this year, with pricing in the difficult-to-compete-with $90 per square foot range.
April comes to a close with a couple more bits of decent housing news. Last week, data on both the existing homes market and the U.S. construction market were more positive and this week’s release of new homes data completed the trifecta. New home sales increased 11% from record low levels in February to reach a seasonally-adjusted annual pace of 300,000 units in March, although they are still down year-over-year. All the other major indicators for the new homes market also incrementally improved. We continued to saw a drawdown in inventory levels while median new home prices firmed. While positive, these improvements are again coming off very low levels.
Not all housing news was positive. Purchase mortgage applications declined this past week after reaching its highest levels since December. Last week, we mentioned that the jump in the Mortgage Bankers Association’s Purchase Index was a positive sign heading into the spring home-buying season. However, new lending guidelines, which include higher premiums, on FHA loans resulted in a sharp drop in government purchase mortgage applications. New FHA guidelines may hurt demand this coming home-buying season as less borrowers will qualify for these loans.
In broader economic news, equity markets continued to rally this week despite rising gasoline prices, an unexpectedly large increase in initial jobless claims, and slower GDP growth. The uptrend comes as a bit of a surprise as gasoline prices near record-highs have heightened concerns over inflation. Most indicators monitoring inflation and price levels have shown a steady rise over the past couple of months. Exploding precious metals prices and persistently high commodity costs are warning clouds that not all is well with the economic recovery.
The Economy
Advance estimates for first quarter gross domestic product showed that economic growth slowed to begin the year. The U.S. economy grew at only 1.8% during the first quarter, much weaker than the 3.1% pace in the final fourth quarter report. This is the slowest pace of growth since the second quarter of last year. However, this marks the seventh straight quarter that the U.S. economy has expanded. Weaker government and consumer spending in the first quarter attributed to the slowdown in economic growth.
First-time unemployment claims surged by 25,000 to a seasonally-adjusted 429,000 in the week ended April 23rd from an upwardly revised figure of 404,000 last week. This is the third straight week that initial jobless claims have remained above the 400,000 level. It is also the highest the claims figure has been in three months which may suggest that improvement in the U.S. labor market is slowing.
Personal incomes in March increased to $13,042.4 billion compared to an upwardly revised figure of $12,975.4 billion in February. This is the sixth straight monthly increase for personal incomes. Personal incomes are up 5.3% from $12,389.4 billion in March of last year. This is the strongest year-over-year increase for personal incomes in any month since June 2008.
Consumer confidence increased to 65.4 in April compared to a reading of 63.8 in March. Although the consumer confidence index has posted increases in six out of the past seven months, it still remains at historically low levels. The present situation index increased from the previous month to a reading of 39.6 from 37.5 last month. This is the highest the present situation index has been since November 2008. The expectations index increased to a reading of 82.6 from 81.3 in the previous month.
The number of people surveyed that plan to buy a home within the next 6 months increased to 5.5% from 4.1% while the portion that plans to buy a new home increased to 1.2% from 0.4% last month.
Housing Market
The National Association of Realtors’ Pending Home Sales index, which is a forward-looking indicator of housing activity based on sales contracts signed, increased 5.1% from the previous month to a reading of 94.1 in March from a reading of 89.5 in February. This is the second straight month that the pending home sales index has increased.
New home sales in March rebounded from the record all-time lows that were set last month in February. Sales activity jumped 11.1% from the previous month in March to a seasonally-adjusted annual rate of 300,000 units. This is the first month since December that new home sales have recorded an increase. New home sales for the previous three months were also revised higher by a combined 32,000 units. However, new home sales are still down 21.9% compared to the same period last year although it is important to note that sales activity last year was artificially driven higher by the federal homebuyer tax credit.
New home prices also firmed up in March as demand increased. Median new home prices increased to $213,800 in March from a February figure of $207,700. New home prices are still down 4.9% from this time last year but 4.2% higher than they were this time two years ago. This is the second straight month that median new home prices have recorded year-over-year declines. The increase in new home prices pushed the new home affordability index lower to 59.7% in March from 60.6% in February.
New home inventory levels continued to decline in March to new record all-time low levels. New home inventories declined to 182,000 units on a non-seasonally adjusted basis. New home inventory on a non-seasonally adjusted basis have not recorded a monthly increase since May 2007. New home inventory on a seasonally-adjusted basis declined to 183,000 units in March compared to a February figure of 185,000 units. New home inventory on a seasonally-adjusted basis have not recorded an increase in 14 months.
National average mortgage declined from the previous week to 4.78% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on April 28th. This is the second straight week that rates have declined. They are now back down to their lowest levels since mid-March. The 30-year fixed-rate mortgage has still averaged below 5.0% for 10 consecutive weeks.
In the week ending April 22nd, the MBA’s seasonally-adjusted purchase index plunged 13.61% from the previous week and was down 29.39% compared to the same time last year. This is the lowest the purchase has been since the first week of March. Purchase applications fell mainly due to a sharp drop in government purchase applications as new FHA lending standards, which included higher premiums, went into effect this past week.
