Current Climate – 4.05.24

Employment – – Total nonfarm payroll employment increased 303,000 in March and the unemployment rate (3.8%) changed marginally (+0.1 percentage point). The unemployment rate has held within a narrow range of 3.7%-3.9% since August 2023 and has been under 4% for 26 months – the longest period of time since the late 1960s.

• Construction added 39,000 jobs in March, more than double the average monthly gain (19,000) over the prior 12 months. Leisure and hospitality employment trended up in March (+49,000) and has returned to its pre-pandemic February 2020 level. Over the previous 12 months, job growth in the industry averaged 37,000 per month.

The Economy – The U.S. Bureau of Economic Analysis (BEA) reports that, based on the “third” estimate, Real Gross Domestic Product (GDP) increased 3.4% in Q4 2023. In the third quarter, GDP increased 4.9%.  For the year, real GDP increased 2.5% in 2023, up from 1.9% in 2022. The 2023 year-over-year expansion in real GDP primarily reflected growth in consumer spending, nonresidential fixed investment, government spending, and exports.

• Inflation, as reflected by the Consumer Price Index (CPI), increased 0.4% in February on a seasonally adjusted basis after rising 0.3% in January. Over the prior 12 months, the all items index increased 3.2% before seasonal adjustment. The index for shelter rose 0.4% in February and continues to account for a large portion (42%) of core CPI.
   
  
• The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.1% in February to 102.8 following a 0.4% decline in January and a 0.2% decline in December 2023. The LEI contracted 2.6% over the six-month period August 2023 through February 2024, reflecting a smaller decrease than the 3.8% contraction over the previous six month period.
  
  
• February was the first time in two years that the U.S. LEI increased, driven by “strength in weekly hours worked in manufacturing, stock prices, the Leading Credit Index, and residential construction. As a result, The Conference Board anticipates the annualized U.S. GDP growth rate to slow over the Q2-Q3 2024 period.
  

Housing Trends – The Realtor.com Monthly Housing Market Trends Report for March showed numerous positive trends including improving inventory. The total number of homes for sale was notably higher in March, up 23.5%, reflecting a fifth straight month of year-over-year growth. For the first three months of this year, the inventory of homes actively for sale was at its highest level since 2020. Nevertheless, inventory remains down (37.9%) compared to pre-pandemic levels.

• Overall, inventory in the 50 the largest U.S. metros increased 16.5% in March but also remains lower (-34.3%) than pre-pandemic levels. The inventory of homes actively for sale increased in 45 out of 50 of the largest metros compared with last year, and in four large metros, (San Antonio, Austin, Dallas and Denver) inventory was above pre-pandemic levels, 13.6%, on average.
  
  
• The national median list price ($424,900) continued to increase seasonally in March — albeit marginally — up 0.2% over the year. The share of listings that reported price reductions also increased in March, up 2.2 percentage points over the year to 15% from 12.7% in 2023.  For the second month in row, home inventory within the $200,000 to $350,000 price range out-ranked all other price categories growing 30.5% over the year.  
  
  
• The rise in active listings was largely driven by the South, which saw active home listings grow 35.8% compared to last year. In March, all four regions saw year-over-year active inventory growth. Similarly, the South has been primarily driving the increase in home availability in the $200,000 to $350,000 price range, accounting for 57.4% of inventory at this price level, up from 43.3% in March 2019.
   
• The number of homes under contract (but not yet sold) increased 16.5% compared to the same month last year, reflecting significant improvement since December when the first annual increase (+0.7%) in pending listings since August 2021 was reported.
  
  
• The typical home spent 50 days on the market in March, two days shorter than March of last year and approximately two weeks less than the average March from 2017 to 2019. In the 50 largest metros, the typical home spent 40 days on the market, on average, four days less than the year prior.

Fannie Mae’s Home Purchase Sentiment Index (HPSI) increased 2.1 points in February to 72.8, inching higher for the third consecutive month. In February, 65% of consumers said it is a good time to sell a home, up from 60% in January, and the share of those who believe it is a good time to buy a home ticked up slightly, but remains pessimistic at 19% as those expecting home prices to escalate over the next 12 months increased from 37% to 42%. Overall, the full index is up 14.8 points on a year-over-year basis.

Existing Home Sales – The National Association of Realtors (NAR) reports that that existing home sales were up 9.5% in February to a seasonally adjusted annual rate of 5.38 million. February represents the largest month-over-month increase in a year. Nevertheless, sales were down 3.3% on a year-over-year basis.

• Three of four regions saw month-over-month increases in February while the Northeast remained static. The West led the way with a 16.4% month-over-month increase, followed by a 9.8% jump in the South, and 8.4% growth in the Midwest. On a year-over-year basis, all regions reported declines ranging from 7.7% in the Northeast, to 1.2% in the West. The South was down 2.9% and the Midwest saw a 3.7% drop over the year.
  
    
• NAR calculated total housing inventory at the end of February to be 1.07 million units or the equivalent of a 2.9-month supply at the current sales pace. . February inventory was up 5.9% over the month and 10.3% over the year.
  
  
• The median existing home sale price for all housing types rose 5.7% year-over-year in February to $384,500, not far from the peak reached in 2023 ($389,800). February was the eighth consecutive month of for year-over-year price gains. All four regions reported year-over-year increases in sales prices ranging from 11.5% in the Northeast to 9.1% in the West, 6.8% in the Midwest, and 4.1% in the South.
  
  
• Single-family home sales grew to a seasonally adjusted annual rate of 3.79 million in February reflecting a 10.3% increase over the month, but a 2.7% decline year-over-year. The median existing single-family home price was $388,700 in February, up 5.6% over the year.     
  
  
• Existing condominium and co-op sales were at an annual rate of 410,000 units in February, up 2.5% month-over-month but down 8.9% over the year. The median existing condo/co-op sale price was $344,000 in February, up 6.7% on a year-over-year basis.
  
  
• First-time homebuyers were responsible for 26% of transactions in February, down from 28% in January, 29% in December and 27% in February 2023. Individual investors/second homebuyers purchased 21% of homes in February, up from 17% in January and December, and 18% in February 2023.
  
  
• TOM – Properties typically remained on the market for 38 days in January, up from 36 days in January, 29 days in December, and 34 days in February 2023.
  
  
• Demographic Distribution – Based on a National Association of Realtors (NAR) trends report, millennials officially replaced baby boomers as the largest group of homebuyers in 2023. The combined share of younger (ages 25 to 33) and older (ages 34 to 43) millennials accounted for 38% of all homes purchased last year, up from 28% in 2022. Both younger (ages 59 to 68) and older (ages 69 to 77) boomers accounted for 31%, down from 39% year-over-year.
  
  
• The report highlighted the surge in first-time homebuyers, which sales category was led by the millennial generation. In 2023, 32% of all homebuyers were first-timers, up from 26% in 2022, and millennials accounted for 75%. However, older millennials, in combination with Gen-Xers (ages 44 to 58) were also represented, accounting for 44% and 24% of the first-time homebuyer cohort, respectively.
  
  
• A recent survey conducted by Redfin found that 78% of older American homeowners (60+) are planning to remain in their current home as they age. This unwillingness to move will continue to exacerbate the inventory issue making it more difficult for millennials and Gen-Xers to find suitable family residences. Empty-nest boomers currently own 28% of three-bedroom homes in the U.S. while millennials with children own just 14%.
  
  
• Pending (Existing) Home Sales Index (PHSI)  – Pending home sales increased slightly in February, up 1.6% over the month, following a 4.9% drop in January to a reading of 75.6. On a year-over-year basis, pending transactions were down 7.0%. All regions suffered year-over-year declines: The Northeast was down 9.0% YoY; the Midwest index saw a 2.5% drop; the South declined 8.5% over the year, and the West was down 7.0% from January 2023. 
  
  
• The NAR recently released its Economic Outlook for 2024 and 2025. As of January, NAR had projected a 13% year-over-year increase in 2024 existing home sales to 4.62 million, followed by a 15.8% jump to 5.35 million in 2025. NAR also projects the annual median existing home price to rise 1.4% this year to $395,100 followed by an estimated increase of 2.6% to $405,200 in 2025. 
  

New Home Sales New home sales were at a seasonally adjusted annual rate of 662,000 in February reflecting a 0.3% month-over-month decrease but a 5.9% increase over the year.

• Inventory – The estimate of new homes remaining for sale at the end of February was 463,000 representing an 8.4-month supply at the current sales pace.  A 6-month supply is considered a balanced market and the abundant supply may serve to slow new construction.
  
  
• On a regional, year-over-year, seasonally adjusted basis, new home sales were up the most (+60.9%) in the Northeast folllowed by the West (+43.4%), and the Midwest (+15.3%). Only the South lost ground, down 10.0% year-over-year in February.  
  
  
• The median sales price of new houses sold in February was $400,500 reflecting a 7.6 year-over-year decrease. The average sales price, also declined (-2.8%) on a year-over-year basis, to $485,000 from $499,100 in February 2023.
  
  
• The most active price range in the new home category was $300,000 to $399,000, accounting for one-third of all sales, followed by the $500,000 to $749,999 range with a 21.7% share. The $400,000 to $499,999 range and the $200,000 to $299,999 range reported identical shares of 16.7%.
  
  
• NAR forecasted new home sales to end 2023 with year-over-year growth of +4.5% reflecting total new home sales of 670,000, and they came really close: According to the U.S. Department of Commerce, 2023 ended with 668,000 sales for a 4.2% year-over-year increase. NAR predicts an increase of +19.4% for 2024 to 800,000 new home sales and a national median new home sale price of $430,800 by the end of the year, increasing to $445,800 in 2025. Stay tuned . . .

Zonda PSI and Other New Home Trends – Zonda also prognosticated well as its revised numbers indicate that 671,000 new homes were sold in 2023.

In January, mortgage rates continued to plague builders, moving between the high 6%s and low-7%s throughout the month. The rates translated to a 5% increase in the monthly mortgage payment, resulting in “consumer angst and little buyer urgency.”  Nevertheless, Zonda’s new home sales counts for the month, which are based on the number of new home contract sales showed that as of January the annualized rate of sales was 664,380, on a seasonally adjusted basis, representing a decline of 1.6% over the month but an 11.7% year-over-year increase. On a non-seasonally adjusted basis, 55,257 homes were sold, 12.2% higher year-over-year.

As of February, Zonda data indicate 718,098 homes sold on a seasonally adjusted annualized basis, reflecting a decline of 0.9% over the month but an 11.4% year-over-year increase. On a non-seasonally adjusted basis, 61,799 homes were sold in the markets tracked by Zonda, for a 13.5% year-over-year increase and 6.4% above the same month in 2019.

• The Zonda Market Ranking (ZMR) came in slightly overperforming, up from average this time last year. The strength in the new home market appears to stem from a flat resale market as inventory is still down 40% compared to pre-pandemic levels. To address the shortage, new home builders are increasing construction. According to Zonda data, 80% are planning to boost their build rate in 2024 in comparison to 2023.
  
  
• The national ZMR Index came in at 113.7 in February. Zonda’s snapshot markets were split between 60% slightly overperforming and 40% average in February. Among Zonda’s top 50 major metros, 64% were overperforming, 22% were average, and 14% were deemed underperforming.
  
  
• Zonda New Home Prices – Of the new home markets tracked by Zonda, on a year-over-year basis national new home prices fell 2.1% at the entry-level to $329,955, 1.7% at the move-up level to $517,074, and 0.2% for high-end homes to $911,228.
  
  
• According to Zonda, 51% of builders reported raising prices in February, up from 42% in January, while 46% reported holding prices flat, down from 54% the month prior. Incentives remain common; 57% of new home communities tracked by Zonda offered incentives in February.
  
  
• Active Community Count – Project count increased in February, up 3.7% over the year to 14,516 actively selling communities tracked by Zonda. On a month-over-month basis, the national count slipped 2.2%. Total community count in February was 24.3% below the same month in 2019. Community counts rose in 12% of Zonda’s select markets in February while 0% were flat and 88% fell.
  
  
• On a year-over-year metro basis, community counts increased the most in Salt Lake City (+13.1%), Orlando (+12.7%), and Austin (+12.6%). Compared to 2019, community counts in these metros were down 23%, 30%, and 13%, respectively. San Francisco, Philadelphia and Cincinnati reported the largest community count declines: -19.3%, -16.7% and -13.4%, respectively.
  
  
• Quick Move-Ins (QMIs) – Homes that can be occupied within 90 days totaled 26,726 units in February, down 10.2% over the year and 9.1% lower month-over-month. However, total QMIs were 56% above 2019 levels.  
  
  
• On a metro basis, 28% of Zonda’s select markets increased QMI counts on a year-over-year basis. Markets posting the biggest year-over-year QMI gains were Cincinnati, Riverside/San Bernardino and Houston, up 38.9%, 34.6% and 11.4%, respectively. Las Vegas, Cincinnati and Jacksonville  have seen the most growth in QMIs compared to the same month in 2019, up 193.6%, 160.7% and 156.7%, respectively. QMIs are down the most compared to 2019 in Seattle (-72%), San Francisco (-60%) and New York (-55%).
  
   
• The Zonda New Home Pending Sales Index (PSI) came in at 141.5 in February, representing a 10.9% year-over-year increase. In February the index was 18.6% below cycle highs. On a month-over-month basis, seasonally adjusted new home sales increased 2.3%.
  

Mortgage Movement – According to Optimal Blue’s latest Originations Market Monitor Report, total mortgage rate lock volume increased 5% month-over-month in February driven by increased purchase activity — up 8.3%.

• Based on the MBA Mortgage Composite Index, mortgage application volume for the week ending March 22, 2024 decreased 0.7% on a seasonally adjusted basis from one week earlier as the 30-year fixed mortgage rate edged lower to 6.93%. The average contracted interest rate for conforming loans was down from 6.97 the week prior while the average contract interest rate for jumbo loans remained unchanged from 7.14%. The average rate for 5/1 ARMs dropped to 6.27% from 6.33%.
  
  
• The Mortgage Bankers Association (MBA) reports that according to its Purchase Applications Payment Index (PAPI), homebuyer affordability declined in February as the national median payment applied for by purchase applicants increased 2.3% ($50) to $2,184 from $2,134 in January.
  
  
• The national PAPI reading increased 2.4% to 170.7 in February, from 166.8 in January. For borrowers applying for lower-payment mortgages (the 25^th percentile), the national mortgage payment increased $35 (+2.4%) to $1,473 from $1,438 in January.
  
  
• New Home Mortgage Applications increased 15.7% on a year-over-year basis in February, reflecting the 13^th consecutive annual increase. The average loan size reportedly increased to the highest level since March 2023 at nearly $406,000. It is, nevertheless, below the record MBA survey high of more than $436,000 recorded in April 2022.
  
  
• The FHA share of new home purchase applications, which provides perspective on first-time homebuyer activity, increased to 25.7% percent, (up from 24.8% in January) indicating that first-time buyers continue to turn to new homes due to the lack of affordable existing home opportunities. The estimated sales pace of new home sales was 689,000 units, down from an estimated 700,000 in January.
  
  
• The Builders’ Purchase Application Payment Index (BPAPI) showed that the median mortgage payment for purchase mortgages from MBA’s Builder Application Survey increased 1.3% from $2,501 in January to $2,534 in February. 

Ciao for now . . .