- Very fast growth in multifamily activity has been pushing up overall construction spending. Jobs in the construction sector have yet to match the rise in spending dollars, however. Given the general lagging impact on jobs, construction job growth looks to perk up in upcoming months.
- Numerically, overall construction spending climbed in July and is now higher by 8.2 percent from one year ago. Spending for multifamily construction (apartments and condominiums) increased by a whopping 41 percent, to the point of closing in on a cyclical high. Spending for single-family construction, however, has been uninspiring, rising by 9 percent, well below the recent peak.
- Spending for commercial real estate (classified as nonresidential) rose by 14 percent and has been making steady progress.
- From the recent lows in 2010, overall construction spending has risen by 22 percent. But construction jobs have increased by only 10 percent. Put differently, each construction worker accounted for about $14,000 to construction spending few years ago. Now, the figure has risen to over $16,000. Evidently, some of the underutilized construction workers are being asked to do more with the pick-up in the economy. Inevitably though, job growth will have to catch up with spending.
- Spending for roads and highways are vital for healthy interstate commerce. But the highway trust fund is running out. Congress will need to reauthorize a special funding in a few months. This issue in itself should be non-controversial since highways are what economists call a “public good” where everyone could potentially free ride. That is, irrespective of who pays, non-payers can still use the highway. Therefore, a minor tax collection from all that helps with the cost is a sound policy. (Just as in the case of fixing potholes within neighborhood roads with homeowner association fees). Unfortunately, the trust in government has fallen so low that taxpayers simply do not believe that the money will be wisely spent by Washington bureaucrats.
A recent survey of REALTORS® Land Institute members found that the median price increase for land in the U.S. was 4 percent for the 12 months ended June 2014.
Approximately half of recent land sales were in the heartland of the U.S.: RLI Region 3 (KY, TN, NC SC, GA, AL, MS, FL; 30 percent of reported land sales), and RLI Region 4 (KS, MO, AR, LA, OK, TX; 26 percent of reported land sales). Approximately three-fourths of recent land sales were for Recreational (21 percent), Timber/Ranch (25 percent) and Agricultural (27 percent) uses.
For the full report, visit: https://rli.memberclicks.net/index.php?option=com_mc&view=mc&mcid=form_175226
- The manufacturing industry is expanding at the fastest pace in 3 years, according to a survey of supply managers. The associated measure known as the ISM index hit 59.0 in August, implying more and more managers are seeing increased activity. (A reading of near 60 implies very good conditions while a reading below 50 implies contraction in the industry).
- Moreover, the number of managers indicating an expansion in employees was 25 percent, while the percentage of managers reporting job cuts was only 12 percent.
- Separate data on industrial production also has been showing solid gains recently.
- A gain in manufacturing activity generally helps the Midwestern states more than others. Michigan, Wisconsin, Indiana, Illinois are typical beneficiaries. They will also help the southeastern states of Alabama, Georgia, South Carolina, and Tennessee as they have steadily captured a shift of manufacturing plant relocations from the Midwest to the Southeast.
- One component of note in industrial production is the rapid growth in computer and electronic components. The production of massive servers to store information in the cloud (such as iclouds) would be included in this category.
- Recent headlines state the obvious of taking prudence when putting things on the web. Nothing is ever safe. Even data clouds can be broken into. It used to be that the fearsome spy agencies of the CIA, KGB, MI6, and the Mossad collected secret photos by having agents hanging around strip clubs. They were not there to enjoy the attractions but rather to snap secret photos of the clientele. They knew that blackmail lasts forever, as can personal information leaks – so be careful with what you put on the web.
- The economy is growing, jobs are being created, and interest rates are still unimaginably low. Naturally, home sales are expected to rise. But the typical business activity of a REALTOR® will be falling as the autumn approaches.
- Every year as the school year begins homes sales invariably decline in September from August. In the past 15 years, the average decline has been 16.4 percent. In October, home sales generally hold on. Then in November, home sales dip again, by 8 percent generally. December figures tend to match the low November figures. Because of the dark, cold weather spanning most of the country, January is not pretty for home sales, with an average plunge of 27 percent. Sunlight then flickers in February with a small rise. Much stronger activity then arises in March and April and into the summer months.
- Despite the weaker business opportunities in the upcoming autumn and winter months, media headlines on home sales are likely to show an upturn and possible strengthening conditions based on NAR home sales releases. What gives?
- An example of jobs in a beach town provides an easy comprehension. In Myrtle Beach, there tend to be about 15,000 more jobs in the summer months compared to the rest of the year. If during one summer the jobs grew by say only 6,000 then one would not say Myrtle Beach is doing well. Rather one will say there is a problem.
- Most headline economic data, therefore, including GDP and unemployment rate, are stated as seasonally adjusted figures. The reason for the seasonal adjustments in the data is to better gauge an underlying economic trend of slight weakening or slight strengthening. For example, if a normal decline in raw home sales count in September is 16.4 percent, but this year September’s decline was say, 8 percent, then the housing market is somehow doing better. The seasonally adjusted home sales figure will then say as such. (Further the figure is multiplied by 12-months to get an annualized rate.) Again, all economic data essentially undergoes this process. And this seasonally adjusted data will get reported in the media and is what consumers will hear.
- What this means is that your clients need to be reminded of these seasonal patterns. The media just may be reporting improving home sales throughout the upcoming autumn and winter. This does not mean a home-seller should be raising the listing price. Invariably, there are fewer home-buyers in autumn and winter.
REALTORS® expect home prices to increase modestly in the next 12 months, with the median expected price increase at 3.4 percent . The expected price change is modest compared to the strong price growth in 2012-2013. Local conditions vary, but concerns about how borrowers are finding it difficult to obtain a mortgage and weak job recovery appear to be underpinning the modest price expectation.
The map below shows the median expected price change in the next 12 months by state of REALTOR® respondents in the May – July 2014 surveys.
 The median expected price change is the value such that 50 percent of respondents expect prices to change above this value and 50 percent of respondents expect prices to change below this value. A median expected price change is computed for each state based on the respondents for that state.
- Red-hot job market conditions exist in North Dakota, Texas, Utah, Nevada, and Delaware. Job growth rates in these states are running roughly twice as fast as the national average.
- At the other end of the spectrum, Alaska, New Mexico, Nebraska, Connecticut, and Illinois are adding jobs at a slow pace. Note: these states are not shedding jobs, but rather adding jobs at a slow pace.
- Good news: the job market is strengthening in most states. 41 states improved with faster job creation in the latest month compared to the month prior, while 9 states experienced slower job gains.
- Among large metro markets, the standouts are Houston (+4.0%), Dallas-Ft. Worth (+3.9%), and Austin (+3.8%).
- Among smaller metro markets, Muncie (+10.4%), Lawrence (+7.4%), and College Station (+7.0%) are far ahead of the rest.
- Real estate is affected by many variables. Interest rates and stock market conditions generally impact all states near equally. But local variations occur due to the strength of local job market conditions. Needless to say, REALTORS® are busier in areas with robust job creation.
- The economy popped out nicely in the second quarter. The measurement of everything Americans produced increased by 4.2 percent. Such a growth rate, if it can be sustained, means measurably higher future income and about 3 million net new jobs a year.
- Looking at the subcomponents, consumer spending rose by 2.5 percent, while business spending increased by 8 percent. Exports rose 10 percent but that gain was more than wiped away by the 11 percent gain in imports. Federal government spending fell slightly from the residuals of sequestrations. Spending by state and local governments rose modestly.
- Due to a recovery in housing starts, home sales, and remodeling spending, the housing sector now comprises $2.71 trillion out of the total GDP of $17.3 trillion. Specifically, spending for Housing and Utilities amounted to $2.16 trillion and Residential Investment totaled $550 billion. That is, the housing market now comprises 16 percent of GDP.
- The long-term historical GDP growth rate is 3 percent each year. Even though the latest quarterly data of 4 percent growth is highly welcoming, it is in the aftermath of a decline in the first quarter. GDP growth has not been consistent. In fact, GDP growth has been subpar, growing under historical normal 3 percent on an annual basis for the past nine consecutive years.
- The forecast is for 1.8 percent GDP growth in all of 2014. It then rises to 2.5 to 3 percent next year. That will translate into about 5 million net new jobs cumulatively over the next two years. Jobs will be ever more important to offset the impact of what appears to be a rising interest rate environment going into 2015.
- GDP growth determines nations’ economic muscular power. In recent times, among the wealthy countries (excluding China), English speaking countries have fared better. Canada, Australia, and Singapore have consistently expanded nicely. Britain and Ireland have also outpaced the rest of Europe.
- Speaking of English-speaking countries: one of the greatest military upsets in history was that of the American colonials defeating the mighty redcoats from Britain. The win might not have occurred without French help at Yorktown. At the peace treaty a Frenchman predicted the likelihood of America becoming the greatest economic power in future. A bitter British diplomat shot back quickly: “Yes sir! And they will all speak English.”
- Earlier this week, we looked at the FHFA and Case-Shiller release focusing on national data trends. Today, we’ll dig a bit deeper to look at more local data at the regional, state, and city or MSA level.
- FHFA releases monthly data at the Census division level and quarterly state and metro area data. Case-Shiller offers data on 20-cities monthly. Both of these sources confirm the trend seen in NAR measures.
- At the regional level: the most robust home price gains from a year ago were still in the West in spite of the fact that this region has seen the biggest drop in the growth rate. NAR reported price change of 6.4% and 6.5% from a year earlier in both June and July in the West. According to FHFA year over year prices in June 2014 rose 9.4 percent in the Pacific division which includes Hawaii, Alaska, Washington, Oregon, and California and 7.3 percent in the Mountain division which includes Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, and New Mexico.
- While NAR data showed the smallest price growth from a year ago in the Northeast (0.6% for the year ending in June and 2.7% for the year ending in July), FHFA showed the smallest gains of 1.9 percent in the East South Central Census division which includes the states of Mississippi, Alabama, Tennessee, and Kentucky.
- State by state data showed that Western states top the list. Nevada and California each saw house prices rise in the double-digits, 14.8 and 11.4 percent, respectively. North Dakota is ranked 4th in a list that includes DC in the rankings at number 3. At the other end, only Mississippi saw a loss in home prices from one year ago. Connecticut and Alaska each saw home price gains of less than 1 percent.
- Among cities, Case-Shiller reported the biggest year over year gains in Las Vegas and San Francisco. Each had more than 12% year over year gains—high, but a marked slowdown. Miami, Los Angeles, Detroit, and San Diego were next on the list, each showing year over year gains of more than 10 percent from a year ago. The smallest gains in Case Shiller’s cities were Cleveland at 0.8 percent, Charlotte at 3.8 percent and New York at 4.3 percent. However, the data provided evidence that the longer trend may be shifting. San Francisco had the smallest month to month price gain whereas New York had the largest.
- For a more detailed, interactive look at home prices in more than 150 metro areas, see NAR’s quarterly metro area median info graphic.
- More people filed applications to take out a mortgage in the past week. Applications for buying a home rose 3 percent from the prior week. They are still down 11 percent from one year before.
- Refinance activity also got a boost by 3 percent as the mortgage rates touched down to the lowest of the year. From a year ago, however, refinances are down by 25 percent.
- Mortgage applications do not always directly correlate with home sales. First, applications do not mean approval. Second, cash-sales can pump up home sales when mortgage activity remains flat, for example. Third, there are always sampling errors from measurement techniques. With these factors in mind, home sales this year have been running below last year’s figure by only about 5 percent. The declines occurring in mortgage purchase applications have been much larger, at 15 to 20 percent.
- In the most recent months, there has been a slight decline in cash-sales as real estate investors have slowly begun to step out of the market.
- It has been a tough year for mortgage brokers. The latest week’s modest upturn is therefore welcomed. However, mortgage brokers should not expect consistent increases. Refinances will soon collapse again when interest rates inevitably turn for the worse. Mortgages taken out for buying a home will likely rise because of job creations, but only slowly and not enough to compensate for the declines in the refinance business.
- New mortgage regulations, such as the Qualified Mortgage Rule, could be hindering more loans from getting approved. Also FHA has greatly increased premiums, thereby punishing current borrowers for the sins of past borrowers, just when the default rates of current borrowers have significantly fallen. On top of this the large banks are getting hit with fresh lawsuits from the U.S. Department of Justice running in the billions of dollars. The big banks are quickly forking over the money without admitting guilt in order to shoo-away the government. That means a large cash reserve is being set aside for legal risk and not being recycled back to consumers. A strange world we live in where banks are flushed with cash, yet banks are unwilling to do the business for which they were set up to do.
Presentation by Dr. Phillip Swagel, University of Maryland
Summary by Jed Smith, Managing Director, Quantitative Research
The REALTOR® University Brown Bag monthly lecture series features presentations by leading economists, analysts, and social scientists on evolving national and regional issues of interest to REALTORS®. The objective is to highlight a diversity of viewpoints in terms of thought-leadership, recognizing that there will be a variety of possibly conflicting ideas and objectives presented. The talks are for informational purposes and may be at variance with some NAR positions.
Dr. Phillip L. Swagel discussed housing finance reform, proposed plans, the new role(s) that Fannie and Freddie should play, and the importance of protecting access to homeownership. Dr. Swagel is currently a professor focusing on international economic policy at the University of Maryland’s School of Public Policy. He was Assistant Secretary for Economic Policy at the Treasury Department from December 2006 to January 2009 during the financial crisis of the Great Recession. He served as a member of the TARP investment committee, and was responsible for analysis on issues including housing, financial markets, healthcare, pensions, and macroeconomic forecasts.
Dr. Swagel noted that the goals for housing finance reform would be to ensure access to mortgages for credit worthy borrowers; increase the goal of the private sector in allocating capital; and protect taxpayers, the financial system, and the economy. He advocated the creation of a Federal Mortgage Insurance Corporation, which would insure Mortgage Backed Securities (MBS) after the private capital of private insurers was exhausted. Guarantee fees would finance the system, and the FMIC would set standards for mortgages. The proposal would ensure that sufficient high-quality private capital was at risk before the government guarantee took effect, and the FMIC would oversee the single securitization platform and set securitization requirements. He expects that new mortgage backed securities issuers would be encouraged to enter housing finance, with resulting competition and innovation. Mortgage backed securities would be insured though a secondary government backstop on the securities, although the issuers/private firms would not be insured.
His proposals are focused on changing the implicit guarantee on the two GSEs into explicit guarantees on conforming MBS, recognizing taxpayer risk that already exists and allowing the taxpayer exposure to shrink as private capital takes the first-loss risk. Details of Professor Swagel’s plan may be found at http://www.realtor.org/videos/realtor-university-speaker-series-housing-finance-reform-highlights-video.
- Last week, NAR released a summary of existing home sales data, showing that July’s existing home sales continued to improve with the highest sales pace of the year. July marks the fourth consecutive month of increased sales. Sales improved by 2.4% from last month but declined 4.3% from a year ago.
- The national median existing-home price for all housing types was $222,900 in July, up 4.9% percent from July 2013.
- All regions showed growth in prices – the Northeast had the lowest gain at 2.4% from last year. The West continues to maintain the biggest price gain (up 6.3% from a year ago).
- July’s inventory figures increased by 5.8% from a year ago and it will take 5.5 months to move the current level of inventory. It takes approximately 48 days for a home to go from listing to a contract in the current housing market.
- Distressed sales have hit a low point, representing a lesser portion of the homes being sold. All cash buyers are representing 20% of the home purchasing population. Price appreciation is decelerating, loans are performing well and mortgage rates are still low so there are some key positives for housing recovery.
Dr. Rolf Pendall, The Urban Institute
Summary by Jed Smith, Managing Director, Quantitative Research
The REALTOR® University Brown Bag monthly lecture series features presentations by leading economists, analysts, and social scientists on evolving national and regional issues of interest to REALTORS®. The presentation by Dr. Rolf Pendall focused on some of the impacts of changing demographic trends on the demand for housing:
With the Baby-Boomers in transition to non-owner occupied housing and/or downsizing, the future demand for housing will be driven b the millennial generation and, to a lesser degree, Generation X. The future buyer will tend to be non-white to a significant degree—e.g., of Hispanic, African American, and Asian extraction. The increasing immigrant population will be a major player in the continued recovery of the housing market.
Falling household formation is projected to impact various areas of the country differently; as REALTORS® well recognize, all housing is local. Dr. Pendall explores the impact on parts of the Midwest in terms of decreased housing demand, in comparison to some other parts of the country where demand is continuing to grow.
What Does This Mean to REALTORS®? The typical first-time buyer client will be different—increasingly non-white and possibly with different preferences from current clients. Some Baby–Boomers will be looking for different types of housing. Finally, there may be an increased demand for remodeling services as homeowners are forced to stay in their homes, being unable to sell them in some areas of the country.
- Last week NAR released median home price information that showed gains of 4.9 percent in July 2014 home prices compared to July 2013. This gain was slightly higher than the 3.7 percent seen in June and notably slower than double-digit price growth in summer/fall 2013.
- Today, both the FHFA and S&P/Case-Shiller released their housing price index data for June. Both data series showed continued but decelerating gains in home prices, suggesting that the pace of home price increase should fall back into a more normal range in the next few months as NAR data has indicated.
- S&P/Case-Shiller showed that home prices grew 8.1 percent year-over-year in June for the 10- and 20-city indexes while FHFA showed a gain of 5.2 percent. A new monthly Case-Shiller national index showed a gain of 6.2 percent year-over-year.
- NAR reports the median price of all homes that have sold while FHFA and Case-Shiller report the results of a weighted repeat-sales index. Because home sales among higher priced properties have been growing more than among lower price tiers, the NAR median price had risen by more than the weighted repeat sales index—which computes price change based on repeat sales of the same property.
- The reason Case-Shiller’s reported price growth is now higher is likely a result of the data lag. Case-Shiller uses public records data which has a reporting lag. To deal with the lag, Case-Shiller data is based on a 3-month moving average, so reported June prices include information from repeat transactions closed in April, May, and June. For this reason, changes in the NAR median price tend to lead Case-Shiller changes.
- FHFA sources data primarily from Fannie and Freddie mortgages, transactions using prime conventional financing, and misses out on cash transactions as well as jumbo, subprime, and government-backed transactions such as those using VA or FHA financing.
- Given recent trends in NAR data, we expect Case-Shiller- and FHFA-measured price growth to continue to moderate in the next few months. For those seeking to determine what this means for home prices in their market, contact a local expert who can give you the most current local MLS information and put these national headlines in context.
- New home sales were a downer in July because buyers of newly constructed homes are not showing up just when homebuilders have started to ramp up production.
- Newly constructed single-family home sales fell 3 percent from the prior month. Because of a very low base one year ago, sales are up 12 percent from July of last year.
- More production and falling sales mean rising inventory. Even so, a typical time to sell a newly built home is 3.5 months. That is down significantly from 12-to-14 months just a few years ago.
- It could just be a one-month data anomaly. The much broader existing home sales, which now comprise over 90 percent of the home sales market, have risen in July by 2 percent. (New home sales measure not closings but contracts while existing home sales measure actual closings).
- The median price of a new home was $269,800, which is an increase of 3 percent from one year ago. Though there is still a large gap between new and existing home price, the gap is slowly beginning to narrow.
- Jobs are being added at a reasonably good clip (2.6 million net jobs in the past 12 months) and mortgage rates continue to amaze by remaining near an all-time low. In addition, the typical number of months it takes to sell a newly constructed spec home is very low, at only 3.5 months. These conditions imply new home sales are primed to increase. The forecast is for 452,000 new home sales this year, up from 429,000 last year. Next year will be even better with 620,000 to 650,000 likely new home sales.
- Herbert Hoover’s love of fishing was based on his motto that “all men are equal before fish.” Natural disasters in a sense are also equal before men. But the aftermath consequences vary tremendously. One major benefit of a newly constructed home in a rich country like the U.S. is its ability to better withstand natural disasters. It is quite a miracle that only injuries are being reported with no-known deaths from last week’s earthquake near San Francisco. Earthquakes of similar seismic strength would have brought much more deaths in poorer countries.
REALTORS® who view the single family housing market as “strong” still outnumber those who see the market as “weak”, according to data from the July REALTORS® Confidence Index Survey.
In the single family market, the REALTORS® Confidence Index – Current Conditions for single family homes dipped to 60 in July (62 in June). Confidence about the outlook for the next six months was positive although lower than in June. The indexes for townhomes and condominiums continued to register below 50. An index above (below) 50 indicates that more (less) than half of REALTOR® respondents viewed housing conditions as “strong” .
Tight inventory, difficulties in obtaining mortgages, and weak job growth were the main concerns reported by REALTORS®. In some areas, uncertainties about flood insurance rates and the increase in property taxes were also cited as adversely affecting sales. FHA condominium accreditation/financing regulations continued to adversely impact condominium sales.
 An index of 50 delineates “moderate” conditions and indicates a balance of respondents having “weak”(index=0) and “strong” (index=100) expectations or all respondents having moderate (=50) expectations. The index is calculated as a weighted average using the share of respondents for each index as weights. The index is not adjusted for seasonality effects.
- The net worth of all households reached a record high early this year, according to the Federal Reserve. Measuring everything we own minus everything we owe, the net worth reached $81.7 trillion. That’s on average of $259,000 per person in the U.S. At the cyclical low point a few years back during the recession, the net worth had been $55 trillion or about $175,000 per person.
- Something appears not right, however. First, most of us are not feeling it. A majority of Americans, according to Gallup, Pew Research, and other polls, consistently say that the economy is still in a recession or the economy is headed in the wrong direction. Second, the wealth numbers look astonishingly high. Who the heck has this type of six-figure wealth?
- The reason for the mismatch between the headline wealth statistics and what people feel is due to insufficient recovery in the housing sector. Only about 10 percent of Americans have a meaningful investment in the stock market while the vast 90 percent have little or none. Therefore, the bull-run of the stocks has brought big smiles only to the top 10 percent of Americans. By contrast a solid majority of Americans have wealth tied to their housing equity and this component has not yet reached a record – though it is rising and recovering.
- Another reason as to why more Americans are expressing displeasure about the current economy is that the rental population has been rising while the ownership population has not. Many homeowners of the baby boom generation empathize with economic situations of their sons and daughters, nephews and nieces. And the younger generation are not homeowners and do not appear to be moving up the economic ladder. Therefore, the poll readings are implying that even the economically fortunate are concerned over the less fortunate. The statistics say the homeownership rate among the young are at the lowest rates in at least 20 years.
- Only with a steady rise in home prices and homeownership will the majority of Americans likely indicate things are moving in the right direction. Home prices are projected to rise about 4 to 5 percent in the each of the next two years and thereby set a new record high in 2016. Meanwhile, based on excessively tight underwriting standards and other reasons, homeownership will likely decline further over the next two years before turning for the better in 2016.
In July, REALTORS® continued to hold a modest assessment about the existing home sales market. REALTORS® reported an inventory uptick in some areas (in CA, FL, ME, MI, IN, ID, and VA), but in many areas supply remained tight relative to demand, especially for “lower” and “middle-priced” homes. REALTORS® continued to report about the difficulty of meeting the credit score and down payment requirements that will qualify buyers for a mortgage. As always, local conditions vary from market to market.
Despite a soft patch in the fall of 2013, job creation reversed course and pressed upward this spring and summer. Of the more than 170 markets currently tracked by NAR Research, 85% had a stronger level of employment in June of 2014 than the same time in 2013.
The top 10 strongest markets over the 12 months ending in June were lead by Grand Rapids. Florida posted three markets in the top 10 as well. Boulder, Raleigh, Fargo and Myrtle Beach also made the list. Each of these markets improved upon what were solid gains over the 12-month period ending in June of 2013 (left below).
The sharpest reversal in fortune came in Danville, Illinois where employment growth was flat over the 12-months ending in June of 2014 compared to a 4.1% decline in employment over the prior 12 months (right, above). The rest of the MSAs that made the top 10 most improved list showed positive gains of at least 0.5% growth over the 12-month period ending in June, while 5 grew by 2.5% or stronger, outpacing the U.S. average of 1.7% for this same time-period.
Want to find out more information about employment trends in your local market? NAR Research recently released Local Market Reports for the 2nd quarter of 2014. These reports cover market fundamentals of supply and demand for more than 170 metro areas.
- Total housing starts surged 15.7% from June to July to 1.093 million in July. This is the highest pace since November of 2013. The bulk of the increase came from the multifamily sector, but there was solid growth on the single family side. CPI inflation eased slightly to 2.0% on a year-over-year basis, providing the Fed more breathing room for its call on raising rates.
- Single family housing starts are closely watched because they reflect both builder confidence and potential improvements in supply, but also have a strong impact on job creation. Furthermore, home construction and sales drive consumption of goods and thus jobs in related industries.
- Single family housing starts rose 8.3% from June to July and were up 10.1% over the last 12 months.
- Permits for construction of single family units increased 0.9% from June to July. Sluggish permit growth suggests a soft patch ahead.
- New home construction is steadily trending upwards, but remains significantly below the 1.06 million annual average from 1980 through 2001. Limits on financing for construction combined with builders’ concerns about demand from the entry-level portion of the market have hampered an expansion of construction.
- Headline CPI eased from 0.3% growth in June to 0.1% growth in July and was up 2.0% from a year ago, down from a 2.1% year-over-year reading in June. A drop in gasoline and energy costs appears to have driven the change, while core inflation was flat at 0.1% on a month-to-month basis. However, the rent component and owners’ equivalent rent components both increased on a year-over-year basis to 3.3% and 2.7%, respectively.
- Inflation is closely watched as an indicator of the Fed’s intentions and timing of future rate increases. The year-over-year rate is back at the Fed’s target of 2.0% (though the Fed prefers inflation measure by the PCE index) suggesting that faster inflation won’t force the Fed’s hand to raise rates earlier than anticipated.
Approximately 16 percent of REALTOR® respondents reported that their last sale was for investment purposes (same as in May), according to the June 2014 REALTORS® Confidence Index. Since January of this year, the share of sales for investment purposes appears to be on the decline from the historical average of about 20 percent in recent years. For investors intending to rent out the property, rising home prices are cutting into profits even if rents continue to rise.