Stronger home sales boost builder confidence in May

CNBC is reporting that builders confidence is the highest since last October.  This definitely reflects the trend that we’re seeing with builders moving forward with larger scale projects.

Stronger home sales boost builder confidence in May

Published Wed, May 15 2019 10:00 AM EDT

Key Points

  • The nation’s homebuilders are reporting a rebound in sales, and that is making them more optimistic about the housing market.
  • Builder confidence in the newly built, single-family home market rose 3 points to 66 in May.
  • That’s the highest reading since October.

Construction on a single family home in Tiskilwa, Illinois.

Daniel Acker | Bloomberg | Getty Images

The nation’s homebuilders are reporting a rebound in sales, and that’s making them more optimistic about the housing market.

Builder confidence in the newly built, single-family home market rose 3 points to 66 in May, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index. That’s the HMI’s highest reading since October, but lower than last May’s level of 70. Anything above 50 is considered positive.

“Builders are busy catching up after a wet winter and many characterize sales as solid, driven by improved demand and ongoing low overall supply,” said NAHB Chairman Greg Ugalde, a homebuilder and developer from Torrington, Connecticut. “However, affordability challenges persist and remain a big impediment to stronger sales.”

Of the index’s three components, current sales conditions, rose 3 points to 72. Sales expectations in the next six months rose 1 point to 72, and buyer traffic moved up 2 points to 49, the only component still in negative territory.

“Mortgage rates are hovering just above 4 percent following a challenging fourth quarter of 2018 when they peaked near 5 percent. This lower-interest rate environment, along with ongoing job growth and rising wages, is contributing to a gradual improvement in the marketplace,” said NAHB Chief Economist Robert Dietz. “At the same time, builders continue to deal with ongoing labor and lot shortages and rising material costs that are holding back supply and harming affordability.”

Regionally, on a three-month moving average, sentiment in the Northeast jumped 6 points to 57; in the West, it rose  2 points to 71; in the Midwest up 1 point to 54; in the South, it gained 1 point to 68.

Prices in the bay area have fallen for the first time since 2012

As reported recently by CNBC.com, prices in the bay area have fallen for the first time since 2012. While this could be simply a minor correction, it’s worthy to take note of as California has historically led home prices in the Northwest and could signal that we’re not yet done with the correction cycle that started last summer.

The median price of a San Francisco Bay Area home sold last month fell slightly compared with the prior-year period, marking the first annual drop since the bottom of the last housing crash, seven years ago, according to CoreLogic.

In March, the median price was $830,000, down 0.1% compared with March 2018. The decline came as price gains had been shrinking for several months. Before last month, the median sale price had risen annually for 83 consecutive months since April 2012. Both May and June 2018 had the highest ever median sale price: $875,000.

Prices follow sales, and sales have been running extraordinarily low since last summer, when mortgage rates spiked.

“It reflects a trend that began in mid-2018 when home sales slowed and inventory grew, forcing sellers to be more competitive,” Andrew LePage, a CoreLogic analyst, wrote in a release. “The year-over-year increase in the region’s median sale price was 16.2% in March last year. But after that, the gains in the median gradually decreased each month and fell to the 2 to 3% range early this year and then disappeared this March.”

Sales of San Francisco homes – including Alameda, Contra Costa, Marin, Napa, Santa Clara, San Francisco, San Mateo, Solano and Sonoma counties – were nearly 15% lower in March compared with a year ago. That was the lowest March reading in 11 years. Sales have been at 11-year lows since December and have fallen on a year-over-year basis for the past 10 months.

These numbers are based on closings, so they were likely deals signed in January and February. The market should have been improving, as mortgage rates were falling, the government shutdown was over and the stock market was surging.

“Those factors bode well for stronger sales than we’ve seen in recent months, but any impending upswing in activity wasn’t evident in the March data,” LePage said. “Beginning in late spring last year, some potential buyers got priced out and others simply stepped out of the market amid concerns prices were near a peak.”

Buyers overall, and especially in high-priced markets like San Francisco, are extremely interest rate sensitive. The average rate on the 30-year fixed spiked to just over 5% last November, according to Mortgage News Daily, and then fell back again in December. In March it took a deep dive to around 4%, but has since climbed back to around 4.5%.

The next two months will be key to understanding whether all the weakness in prices and sales is due to fluctuations in interest rates, or whether the market has simply hit an affordability wall. Inventory is rising, but largely because homes are sitting on the market longer, not because there are a ton of new listings.

Sales of existing U.S. homes fell in March

As reported in Fox Business News on April 22, 2019, the housing market is still trying to find its’ footing, particularly in the high end product.  The lower end and more moderately priced homes are continuing to surge, which reinforces what we’ve been seeing locally.  The smaller product – generally 1500-2100 square feet – is selling quickly and we’ve got a glut of million dollar plus homes sitting on the market.

Sales of existing U.S. homes fell in March after a huge gain the previous month, held back partly by a sharp slowdown among the most expensive properties.

The National Association of Realtors said Monday that home sales fell 4.9% to a seasonally adjusted annual rate of 5.21 million, down from 5.48 million in February. The drop followed an 11.2% gain the previous month, the largest in more than three years.

Home sales are struggling to rebound after slumping in the second half of last year, when a jump in mortgage rates to nearly 5% discouraged many would-be buyers. Spring buying is so far running behind last year’s healthy gains: Sales were 5.4% below where they were a year earlier.

Most analysts expect sales to rebound in the coming months. Borrowing costs have since fallen back to an average of 4.2% on a 30-year fixed mortgage. And solid hiring is pushing employers to pay higher wages, making it easier for more Americans to afford a home purchase.

Applications for mortgages to purchase homes have been running at a healthy pace in recent months, evidence that final sales should pick up in the coming months. Demand remains strong, with homes on the market for an average of 36 days in March, down from 44 in February.

“We look for a combination of strong demand and lower mortgage rates to support modest growth in sales over the balance of the year,” said Nancy Vanden Houten, senior U.S. economist at Oxford Economics.

Still, a split in the market has emerged, thanks partly to the Trump administration’s tax cut law. Sales increased slightly among mid-priced homes but fell sharply among homes priced at $1 million or more.

Lawrence Yun, chief economist at the NAR, said that the tax changes have limited the ability of wealthier homeowners to deduct mortgage interest payments and property taxes. That’s discouraging sales of more expensive homes.

Developers have built more expensive homes in recent years while pulling back from cheaper properties, even as middle-income Americans are eager to buy.

“The lower-end market is hot while the upper-end market is not,” Yun said.

Properties valued at $100,000 or less, mostly condos, also saw a sharp drop in sales, though that reflects a lack of available homes at that price point. The slowdown among higher-priced homes has occurred because of weaker demand.

Sales fell in all four major U.S. regions, with the biggest decline occurring in the Midwest. That may have partly reflected the impact of massive flooding in Iowa, Missouri and Nebraska last month.

 

MARCH 26TH, 2019

Suntel Design is pleased to announce that they are partnering with Chad E. Davis, Builder and ECON Builders to provide all the architectural planning and construction documents for 31 new single family homes to be built in Forest Grove, Oregon. The homes will range from approximately 1500 to 2000 square feet and all will have at least 3 bedrooms and two bathroom. Most will feature covered patios and island kitchens and construction is set begin soon. Please contact either Chad E Davis or ECON Builders for sales and pricing information.

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