Current Climate – August 30, 2021
Employment – Total nonfarm payroll employment rose by 943,000 in July and the unemployment rate declined by 0.5 percentage points to 5.4%. The largest job gains were in leisure and hospitality industry, which accounted for two-thirds of the gains. Nevertheless, employment in leisure and hospitality is down 1.7 million or 10.3% from the February 2020 level. In July, employment in construction remained stagnant.
Economy – The U.S. Bureau of Economic Analysis (BEA) reports that real gross domestic product (GDP) increased at an annual rate of 6.5% in Q221, reflecting continued economic recovery, the reopening of establishments, and continued government response related to the pandemic.
The Conference Board (CB) Leading Economic Index® (LEI) increased 0.9% in July to 116.0 (2016 = 100) following a 0.5% increase in June, a 1.2% increase in May, and a 1.3 percent increase in April. The LEI’s upward trend is consistent with strong economic growth in the second half of the year. CB forecasts year-over-year GDP growth of 6.0% for 2021 and a healthy 4.0% growth rate for 2022. https://conference-board.org/us/
The Consumer Price Index (CPI) increased 0.5% in July on a seasonally adjusted basis after rising 0.9% in June, which was the largest one-month change since June 2008 when the index rose 1.0%. Over the last 12 months, the index increased 5.4% before seasonal adjustment, the largest 12-month increase since August 2008.
Inflation is dominating the economic narrative currently with the general consensus expecting intensification by the end of Q3. Inflation surged in Q2 as consumer prices rose 5.0% year-over-year in May, the highest in 13 years, and core CPI, which excludes food and energy, hit 3.8% the highest since 1992. Stay tuned . . .
Listings and Homebuyer Sentiment – Home prices have begun to moderate. Realtor.com reports that prices recorded a third week (week ending 8/14) at a single-digit pace after 50 consecutive weeks of price growth in the double-digit range. While suggesting a key buyer-friendly benchmark, home prices still remain high and price growth faster than typical. Data further indicate that the moderation is being influenced by an influx of smaller homes on the market. In contrast, the typical asking price for a 2,000 square foot single family home continued to advance at a double-digit rate.
The median list price grew 8.6% year-over-year for the week ending 8/7, a pace that is about half of April’s 17.2% rate. However, the median home list price held its record high in July at $385,000. New listings continue on an upward trajectory (+6%) year-over-year, but remain behind the more “normal” 2019 pace. Inventory continues to shrink, down 26% year-over-year, but the gap has gotten smaller for the last 19 consecutive weeks. The consensus is optimism that inventories will begin to grow before the end of the year.
Fannie Mae’s Home Purchase Sentiment Index (HPSI) reflects the “iffy” market conditions, dropping 3.9 points to 75.8 in July. The survey found that 66% of respondents believe it is a bad time to buy a home due to high housing prices, up from 64% in June, and while 28% said it was a good time to buy a home, that percentage was down from 32% in June. At the same time, respondents that believe it is a good time to sell dropped from 77% to 75%. At the time of survey, the HPSI stood at +1.6 points over the year.
Existing Home Sales – Existing home sales rose 2.0% month-over-month in July to a seasonally adjusted annual rate of 5.99 million units and a 1.5% year-over-year increase.
The median existing home sales price for all housing types was $359,900 in July, up 17.8% year-over-year. All regions recorded price increases as July marked 113 consecutive months of year-over-year price gains. For perspective, that’s 9.4 years of monthly price increases. Said another way, prices have increased every month since mid-2012.
Single-family home sales were at an annual rate of 5.28 million in July reflecting a 0.8% year-over-year decline while increase, and existing condominium and co-op sales recorded an annualized pace of 710,000 units reflecting a 22.4% year-over-year increase.
The median existing single-family home sale price was $367,000 in July up 18.6% year-over-year, while the condo/co-op median sale price was $307,100 for a 14.1% y/y increase.
Housing inventory at the end of July stood at 1.32 million units, up 7.3% from June but down 12.0% from a year ago. Unsold inventory sat at a 2.6-month supply at the current sales pace, down from a 3.1-month supply one year ago.
Properties typically remained on the market for 17 days in July, unchanged from May and June but down from 22 days last year; 89% of homes sold in July were on the market less than a month.
Individual investors/second home buyers purchased 15% of homes in July, reflecting a flat condition year-over-year. First-time buyers accounted for 30% of sales in July, down from 34% a year prior.
On a regional basis, existing home sales were up slightly (1.2% – 3.8%) in the South, Midwest and West, and remained steady in the Northeast. Median sales prices were up in all regions, ranging from 12.5% in the West to 23.6% in the Northeast.
New Home Sales – Sales of new single-family homes in July were at an annual rate of 708,000. This is 1.0% above the revised June rate of 701,000, but 27.2% below July 2020. New home inventory stood at at 367,000 at the end of July, representing a 6.2-month supply at the current sales rate.
The median price for new homes sold in July was $390,500, more than 18% higher than one year ago. Further, the new home sale price is approximately 8.5% higher than the current existing home median sale price. The average new home sale price was $446,000 in July, 4% higher than June’s average price ($428,700) and 14% higher year-over-year.
New Residential Construction – Building permit issuance in July was at an annual rate of 1,635,000, 2.6% above the revised June rate of 1,594,000 and 6.0% above the July 2020 rate of 1,542,000.
Housing starts in July were at an annual rate of 1,534,000, 7.0% below the revised June estimate of 1,650,000 but 2.5% higher, year-over-year. Housing completions in July were at an annual rate of 1,391,000, 5.6% higher month-over-month and 3.8% higher year-over-year.
Year-over-year, permit issuance was up in in the South and the West, 10% and 13%, respectively, and down in the Northeast (-8.2%) and the Midwest (-9.3%).
For the July period, permits authorized but not started were most prevalent in the Wouth Northeast (up 92.3% y/y), followed by the South (+51.6%), the Midwest (+30.8%) and the West (+22%). The Midwest ranked #1 with regard to units completed in July, up 17/9% year-over-year, followed by the Northeast, up 7.7%. The South and the West were relatively flat.
Continuing the trend of record-high confidence on a slow decline, the National Association of Home Builders/Wells Fargo Housing Marketing Index (HMI) shows that builder confidence for newly built single-family homes fell two points in June to 81 followed by a one point slip to 80 in July. Homebuilder sentiment continues to be challenged by construction costs, material constraints and labor shortages.
Pending Home Sales – The National Association of Realtors® Pending Home Sales Index (PHSI) fell 1.86% to a reading of 110.7 in July, down from 112.8 in June. Year-over-year contract activity was down 8.5%. Only the West region registered a month-over-month gain (+1.9%) and all four regions saw transactions decrease year-over-year. The Northeast saw the greatest decline, down 16.9% year-over-year, followed by the Midwest (-8.5%), the South (-6.7%) and the West (-5.7%).
The most current Zonda New Home Pending Sales Index (NHPSI) came in at 137.7 in July, reflecting a 0.3% month/month increase, but a decline of 13.2% year-over-year. In comparison to July 2019, Zonda’s PSI was up 21.8%. At this juncture, pending home sales are 11% above the pre-pandemic peak.
Of the 25 markets tracked, 21 exhibited negative year-over-year pending sales activity. Of the four reporting year-over-year gains, New York ranked #1 with a 27.4% increase, followed by Las Vegas (+18%), Jacksonville, FL (+5.7%) and Los Angeles (+3.5%).
Mortgage Activity – Mortgage applications increased 1.6% for the week ending August 20th. While Refis ticked up 1% week-over-week, purchase mortgage applications jumped 3%. According to the Mortgage Bankers Association, the purchase index was at its highest level since early July, though still down 16% year-over-year. The average contract interest rate for a 30-year fixed conventional mortgage remained relatively flat at 3.03%. Freddie Mac reported an average commitment rate of 2.87% in July.
Ciao for now.
Stay safe and be well.