Current Climate – 03.31.23

Employment – Total nonfarm payroll employment rose by 253,000 in April and the unemployment rate maintained at 3.4%. The unemployment rate has ranged from 3.4% to 3.7% since March 2022.

• Employment continued to trend upward in professional and business services, health care, leisure and hospitality and social assistance. Leisure and hospitality added 31,000 jobs resulting in an average monthly growth rate of 73,000 over the last six (6) months. Leisure and hospitality employment was  2.4% below pre-pandemic levels (February 2020) in April.
  

• Construction employment hit a 23-year low in April with the addition of just 15,000 jobs. Nevertheless, construction employment was up 2.7% over the year in April and the unemployment rate (4.1%) was down from 4.6% a year earlier. Residential and specialty trade sectors accounted for the lion’s share (95%) of the growth or 14,200 jobs.
  
  
• Construction employment has increased 15,000 per month, on average over the period November – April. Recent weakness in construction employment follows declines in residential building permits and residential construction spending.

The Economy – Based on the U.S. Bureau of Economic Analysis (BEA) “second” estimate, real gross domestic product (GDP) increased at an annual rate of 1.3% in Q1 2023, down from 2.6% in Q4 2022. The deceleration primarily reflected a downturn in private inventory investment and a slowdown in nonresidential fixed investment, partly offset by an acceleration in consumer spending, an upturn in exports, and a smaller decrease in residential fixed investment.

• Personal income increased $251.3 billion in Q123 reflecting a downward revision of $27.6 billion from the “advance” estimate. Disposable personal income increased $561.6 billion or 12.3% in Q1 reflecting a downward revision of $9.6 billion.  
  
  
• The Consumer Price Index (CPI) increased 0.4% in April on a seasonally adjusted basis raising the index 4.9% over the year, representing the smallest 12-month increase since April 2021.
  

• The Conference Board (TCB) Leading Economic Index® (LEI) for the U.S. declined 0.6% in April to 107.5 following a decline of 1.2% in March. The LEI was down 4.4% over the six-month period ending April 2023 reflecting a steeper rate of decline than its 3.8% contraction over the previous six-month period. The LEI has now fallen for 13 consecutive months. The Conference Board forecasts a contraction in economic activity beginning this quarter leading to a mild recession by mid-year.

Housing Trends – The Q1 2023 homeownership rate of 66% was not statistically different from Q4 2022.

• Nationwide, the inventory of homes actively for sale increased by 48.3% year-over-year in April, translating to 184,000 more homes available for sale during the month. However, fresh home listings dropped 21.3% in April compared to a year prior.
  
  
• The total number of unsold homes, including those under contract increased 6.3% over the year and the median price of homes for sale ($430,000) reflected an annual rate of increase of 2.85% in April, down from 3.9% in Q123.
  
  
• Homes spent 49 days on the market in April, 17 days longer than April 2022 but 12 days less than during the pre-pandemic period.
  
  
• The percentage of homes with price reductions increased from 6.8% in April of last year to 12.2% this year. The share of price reductions has been below typical levels seen in 2017 to 2019 since February.
  

• Home buying expectations remain relatively negative with those saying prices will go up over the next 12 months increasing from 32% to 37%, while the percentage of respondents saying mortgage rates will go up remains relatively high at 47%.  
  
  
• The percentage of respondents who say it is a good time to buy a home increased from 20% to 23% while the percentage saying it is a bad time to buy decreased from 79% to 77%.
  
  
• The percentage of respondents saying it is a good time to sell increased from 58% to 62% while those saying it is a bad time to sell decreased from 40% to 38% suggesting a potential shift in existing for-sale inventory conditions.

Homebuilder confidence continues to trend upward as limited existing inventory puts renewed emphasis on new construction. In March, 33% of homes listed for sale were new homes. This compares to a 12.7% average share over the 2000 – 2019 period. Builder sentiment rallied accordingly, rising five points to 50 in May, marking the fifth consecutive month of increases and the first time that confidence levels have reached the midpoint benchmark of 50 since July 2022. 

• The share of builders reducing home prices dropped to 27% in May, down from 30% in April, 31% in February and March and 36% last November. The average price reduction remained at 6%, unchanged over the past four months. Builders offering incentives dropped to 54%, down from 59% in April and 62% in December 2022.
  
  
• All three major HMI indices posted gains in May. The HMI index gauging current sales conditions rose five (5) points to 56; sales expectations for the next six months jumped seven (7) points to 57; and prospective buyer traffic increased two (2) points to 33.

Residential Construction was down in two regions and up in two regions in April. The Northeast and the South were up 2.3% and 3.9%, respectively, while the Midwest and West were down, 6.4% and 3.2%, respectively.

Building Permits in April were at a seasonally adjusted annual rate of 1.416 million, reflecting a 1.5% decrease from March and a 7.3 % drop from February’s revised rate of 1.55 million. On a year-over-year basis, the current rate represents a 21.1% decrease.

• On a regional basis, permit declines were suffered universally on a year-over-year basis in April led by the Northeast, down 29.4%, followed by the Midwest (-28.5%), the West (-21.3%) and the South (-17.48%).

• Single-family permit authorizations in April stood at a rate of 855,000, 3.1% above the revised March figure of 829,000. Authorizations of units in buildings with five units or more were at a rate of 502,000 in April reflecting a 7.6% decrease over the month.

Housing starts in February were at an annual rate of 1,401 million reflecting a 2.2% month-over-month increase, but a 22.3% decline on a year-over-year basis.  

• Single-family starts were at a rate of 846,000 in April reflecting a 1.6% month-over-month increase. Multifamily housing starts were at a rate of 542,000, identical to March.
  
  
• Housing starts were also down across all regions led by the West (-25.5%), followed by the South (-23.7%), the Midwest (-21.9%) and the Northeast (-2.2%).
  

Housing completions were at an annual rate of 1,375,000 in April. This is 10.4% below the revised March estimate of 1,534,000 and 1.3% above the April 2022 rate.

• Single-family housing completions in April were at an annualized rate of 971,000, 6.5% below the revised March rate of 1,039,000. The rate for completed units in buildings with five units or more was 400,000 in April reflecting a 17.4% month-over-month decrease. 
  

• Completions were up the Northeast (+15.3%) and the Midwest (+18.8%), flat in the South (+0.4%), and down in the West (-10.2%).
  

Existing Home Sales – Existing home sales receded in April, sliding 3.4% from March to a seasonally adjusted annual rate of 4.28 million. Year-over-year, sales were down 23.2%. All regions registered month-over-month and year-over-year sales declines.

• Total housing inventory registered 1.04 million units at the end of April, up 7.2% from March and 1.0% from one year ago. Unsold inventory represented a 2.9-month supply at the current sales pace in April, up from 2.6 months in March and 2.2 months one year prior.
  
  
• The median existing home sales price for all housing types in April was $388,800, down 1.7% from April  2022 as prices climbed in the Northeast and Midwest and retreated in the South and West.
  
  
• Single-family home sales dropped to a seasonally adjusted annual rate of 3.85 million in April, reflecting a 3.5% month-over-month decrease and a 22.4% year-over-year decrease. The median existing single-family home price was $393,300 in April, down 2.1% over the year.  
  
  
• Existing condominium and co-op sales were at an annual rate of 430,000 units in April, down 2.3% over the month and -29.5% over the year. The median existing condo price was relatively flat at $348,000.
  
  
• Properties typically remained on the market for 22 days in April, down from 29 days in March but up from 17 days in April 2022. Seventy-three (73%) percent of homes sold in April were on the market for less than a month, up from 65% in March.
  
  
• The share of first-time homebuyers stood at 29% in April, up from 28% in both March 2023 and April 2022.
  Individual investors/second home buyers purchased 17% of homes in April, identical to March and one year prior. 
  
  
• All regions saw sales contractions in April ranging from -20.2% year-over-year in the South to -31.3% in the West. The Northeast and Midwest saw y/y declines of 23.9% and 21.5%, respectively. Sales prices increased in two regions and fell in two regions.
  
  
• Year-over-year declines were reported in the West (-8.0%) and South (-0.6%) while increases were reported in the Northeast (+2.8%) and Midwest (+1.8%).
  

Pending (Existing) Home Sales – Pending home sales were flat on a month-over-month basis in April, improving in three regions, but dropping in the Northeast. Over the year, pending home sales fell in all four regions.

• The Pending Home Sales Index (PSI) remained at 78.9 in April, posting no change from March. However, pending transactions dropped 20.3% year-over-year.
  

• The West enjoyed a 4.7% boost, followed by the Midwest, up 3.6%, and the South jumped a negligible 0.1% but reached an index level of 99.6. An index of 100 is equal to the level of contract activity in 2001. The Northeast suffered a significant 11.3% drop to an index level of 59.1.
  

New Home Sales Activity – Sales of new single-family houses in April were at a seasonally adjusted annual rate of 683,000, 4.1% above the revised March rate and 11.8% above the April 2022 estimate of 611,000. The estimated inventory of new homes for sale stood at 433,000 at the end of April, representing a 7.6-month supply at the current sales pace.

• The median sales price in April was $420,800 reflecting an 8.2% year-over-year decline and the average sales price of $501,000 reflected a 10.9% decrease over the year.
  

• The $300,000 to $399,999 price range saw the most activity, accounting for 32.3% of all sales, followed closely by the $500,000+ category which accounted for 30.0% of all sales. The $400,000 to $499,999 price range accounted for 23% of sales and the $200,000 to $299,999 price range accounted for 15%. There were no sales under the $200,000 price point.
  
  
• On a regional basis, sales were down in the Northeast and West, -46.7% and -2.8%, respectively, and up in the Midwest (20.6%) and the South (23.4%).
  
  
• Zonda (https://zondahome.com) reports that based on its proprietary database there were 712,357 new homes sold in April on a seasonally adjusted annualized basis reflecting a gain of 5.4% over the month and an 8.4% year-over-year increase.
  
  
• Zonda also reports that there were 13,750 actively selling communities tracked by Zonda in April, down 0.3% from last year. On a month-over-month basis, the national figure fell 2.5%. The total active community count currently stands at 28.9% below the same month in 2019.
  
  
• Riverside/San Bernardino (+22.6%), Salt Lake City (+16.8%) and Los Angeles/Orange County (+11.7%) saw the greatest community count growth over the year. The largest declines were in Baltimore (-18.4%), Tampa (-13.6%) and Atlanta (-12.0%).
  

Quick Move-Ins (QMIs) — homes that can be occupied within 90 days — totaled 25,261 in April, up 120.4% over the year but were 9.6% lower month-over-month based on the markets tracked by Zonda. In April, total QMIs stood at 32.3% above 2019 levels. Markets posting the biggest year-over-year gains in QMIs were Jacksonville (+385.8%), Phoenix (+340.6%) and Tampa (+198.3%).

Prices – According to Zonda, national home prices rose across all housing segments on a year-over-year basis.

• Prices rose 3.5% in the entry-level category to $338,540; 3.5% in the move-up segment to $528,712; and 6.9% for high-end homes to $913,892. Approximately 60% of builders reported raising prices in April and 40%+/- reported holding prices flat. This compares to a 50/50 split at the end of last year.

The Zonda New Home Pending Sales Index (PSI) came in at 137.5 in April representing a nominal 0.4%  decline over the year. The index is currently 21.1% below cycle highs, an improvement from February when it was down 32.4%.   

Mortgage Movement – The MBA Composite Mortgage Market Index decreased 4.6% on a seasonally adjusted basis from one week prior in the week ending May 19^th.

• The seasonally adjusted Purchase Index decreased 4% over the week while the unadjusted Purchase Index decreased 5% and was 30% lower than the same week one year prior as borrowers remained sensitive to increasing interest rates.
  

• The average 30-year fixed mortgage rate for conforming loan balances was 6.69% for the week, up from 6.57% the week prior, the highest since March.
  
  
• The average contract interest rate for 5/1 adjustable-rate mortgages increased to 5.73% from 5.71% the week prior.
  
  
• The ARM share of activity decreased to 6.5% in the week ending May 12^th. Last fall, ARMs constituted approximately 9% of all new home loan applications.
  

Ciao for now . . .