Given that the first quarter of 2014 gave us some decidedly
mixed messages on economic output and housing demand, it was certainly good
news to see that The Conference Board’s Leading Economic Index, or LEI, rose by
a definitive 0.8 percent in March on the heels of smaller increases in both
February and January.
What this likely means is that after a weather-related pause
due to a particularly harsh winter in much of the country, economic growth is
again gaining traction. Still, the
economy has yet to function on all cylinders, with both the labor market and
consumer confidence improving while building permits – certainly a future-looking
barometer – dipped by 2.4 percent in March and have bounced mostly between
900,000 and one million units per month over the last year. Meanwhile, housing starts
rose by nearly three percent in March and averaged 923,000 units during the
first quarter of 2014, but are still down by about six percent from March 2013.
For now, builders are still managing to sell close to
450,000 annualized single-family units per year while inventory has been slowly
creeping up to 189,000 homes by February 2014, or about 5.2 months of
supply. At the same time, the median
sales price for new homes hit $261,800 in February versus $267,700 for all of
2013.
After being in a holding pattern for several months, builder
confidence ended the quarter at 46 before rising by one point to 47 in
April.
According to NAHB Economist David
Crowe, “Headwinds that are holding up a more robust recovery include ongoing
tight credit conditions for home buyers and fact that builders in many markets
are facing a limited availability of lots and labor.”
For existing homes, the mixed messages are also in
abundance, with total sales remaining mostly flat in March at 4.59 million on
an annual basis but down by 7.5 percent from a year earlier. Still, prices continued to rise by nearly 8
percent to $198,500 over the last 12 months.
Certainly, one key benefit of rising home prices is increased equity,
thus removing even more homeowners from the negative equity column while
contributing to fewer distressed sales.
Such distressed sales accounted for just 14 percent of March’s total
sales, down from 21 percent a year earlier and likely to fall into the single
digits later this year.
Existing home inventory at the end of March rose by nearly
five percent to about two million homes or about 5.2 months of supply – the
same timeline reported for new home inventory in February and a slight increase
from the previous month. However, the
median time it took to sell an existing home fell to 55 days in March 2014, or
about a week less than reported a year earlier.
On the labor front, the 192,000 jobs added in March meant
that the country had finally reached a major milestone:
recapturing all of the jobs lost in The Great
Recession.
Yet because the unemployment
rate remained stubbornly stuck at 6.7 percent, in its most recent meeting the
Federal Reserve’s Open Market Committee decided to keep its short-term interest
rates at historic lows even if the unemployment rate falls below 6.5 percent,
its previous threshold.
In addition, the
monthly survey of planned job cuts by Challenger, Gray and Christmas showed
that employers announced the lowest level of first-quarter job cuts in 19
years.
This gradual improvement in the economy has the Fed on track
to continue reducing its purchase of mortgage-backed bonds by $10 billion per
month. This third round of ‘quantitative
easing’ was meant to lend support to a housing market and keep the flow of
mortgage credit from collapsing.
Consumers are also waking up from their own economic nap,
which is critical for an economy in which consumer spending accounts for nearly
70 percent of gross national product.
During March, retail sales jumped at the highest rate since September
2012 after following a February advance that was twice originally
estimated.
Even better, despite the
harsh winter and a severe drought across the Western U.S., consumer’s views of
their financial prospects were much higher in March than three months earlier.
However, one warning is in order: because consumers have become so accustomed
to low interest rates, any increase in borrowing costs is expected to have a
much higher impact on buying behavior than in years past when current interest
rates were higher. Rather than jumping
on a good deal, they may simply wait to see if the purchase is in their best
interest.
Please click here to see the edition of BuilderBytes for 4/29/14 on the Web. 
My column for the April 2014 issue of Builder and Developer magazine is now posted online.
