Current Climate – 05.19.22
Employment – Total nonfarm payroll employment rose by a significant 428,000 in April and the unemployment rate remained unchanged at 3.6%. Job gains were widespread led by leisure and hospitality, manufacturing and transportation and warehousing. Construction employment was flat in April on the heels of the addition of 19,000 new positions in March and a return to the February 2020 level.
Construction employment increased in 75% of U.S. metro areas between March 2021 and March 2022, according to the Associated General Contractors of America (AGC). Results of a government survey showed 364,000 job openings in construction going into March for a 52% year-over-year gain. However, openings exceeded the 342,000 employees hired in February, implying that construction firms could have added twice as many employees if they had been available.
The Economy – Based on the U.S. Bureau of Economic Analysis (BEA) third estimate, real gross domestic product (GDP) increased at an annual rate of 6.9% in Q4 2021, following an increase of 2.3% in Q3. In all, 19 of 22 industry groups contributed to the Q4 increase. Real GDP ended the year +5.7% on a year-over-year basis. This compares to a decrease of 3.4% in 2020.
By Q1 2022, GDP had decreased at an annual rate of 1.4% based on the “advance” estimate. The “second” estimate for the first quarter, based on more complete data, will be released on May 26, 2022. The decrease in real GDP reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending. The Q1 COVID-19 surge played a role in the decline, but is not, at this time, quantifiable. The Consumer Price Index (CPI) increased 0.3% in April on a seasonally adjusted basis after rising 1.2% in March. Over the prior 12 months the all-items index increased 8.3% before seasonal adjustment.
The Conference Board Leading Economic Index® (LEI) for the U.S. increased by 0.3% in March to 119.8 (2016 = 100), following a 0.6% increase in February. The LEI increased 1.9% over the six-month period September 2021 to March 2022. The Conference Board projects 3.0% year-over-year U.S. GDP growth in 2022, which is slower than the 5.6% pace of 2021 but still well above pre-COVID trends.
Housing Trends – Realtor.com’s Weekly Housing Trends for the week ending May 7TH shows the median list price growing 15.8% year-over-year, marking the 21ST consecutive week of double-digit gains. Year-to-date, the median list price was up 13.3%.
Active listings grew for the first time since June 2019 reflecting a switch to growth after nearly three years of decline. While new listings remain near a record low (60% below the level at the onset of the pandemic) Realtor.com reports a 4% year-over-year increase in April. According to Realtor.com’s Spring 2022 Seller report, 18% of American homeowners plan to sell a home this year and 64% of them plan to do so by August, portending a welcome influx of inventory.
Purportedly due to rising interest rates, homes are sitting on the market for less time than ever before, a condition that is normally not achieved until summer. Homes spent six (6) days less on the market in April compared to the same period last year.
Existing Home Sales – Existing home sales fell for the third consecutive month in April to a seasonally adjusted annual rate of 5.61 million, reflecting a 2.4% month-over-month decline and a 5.9% drop from one year ago. With mortgage rates expected to rise further, expectations call for transactions to contract 10% this year and for home prices to readjust with gains in the 5%+/- range.
Total housing inventory at the end of April stood at 1.030 million units, up 10.8% from March but down 10.4% year-over-year. Unsold inventory sat at a 2.2-month supply at the present sales pace at the end of April, up from 1.9 months in March and down from 2.3 months in April 2021.
The median existing home price for all housing types in April was $391,200, up 14.8% year-over-year as prices rose in all regions. This marks 122 consecutive months of year-over-year increases, the longest-running streak on record.
Single-family home sales dropped to an annual rate of 4.99 million in April, down 2.5% month-over-month and -4.8% year-over-year. The median existing single-family home price was $397,600, representing a 14.8% year-over-year increase.
Existing condominium and co-op sales were at an annual rate of 620,000 units in April, down 1.6% from March, and -13.9% over the year. The median existing condo price was $340,000 for a year-over-year increase of 11.9%.
All regions saw a slowdown in sales. The Northeast dropped 10.7% year-over-year in April, followed by the West, (-8.1%), the South (-5.7%), and the Midwest, down 1.5% from one year ago.
Median prices were up in all regions year-over-year: The South saw a significant 22.2% increase, the only region to report double-digit price gains; followed by the Midwest (+8.7%); the Northeast (+8.1%); and the West, up 4.3%.
Properties typically remained on the market for 17 days in April, equal to March 2022 and April 2021; 88% of homes sold in April 2022 were on the market for less than one month.
First-time homebuyers were responsible for 28% of sales in April, down from 31% one year prior. Individual investors and second home buyers purchased 17% of homes in April, equal to April 2021. Cash sales accounted for 26% of transactions, up from 25% the year prior.
Pending (Existing) Home Sales – Pending sales fell for the fifth consecutive month in March, down 1.2% month-over-month. On a year-over-year basis, pending sales fell for the tenth consecutive month, down 8.2% from March 2021. Pending sales were down across all regions. Source: NAR PHSI
Builder Benchmarks – Construction spending during March was estimated at a seasonally adjusted annual rate of $1.73+ billion, 0.1% above the revised February estimate and 11.7% higher year-over-year.
Building permit issuance in April was at an annual rate of 1,819,000, 3.2% below the revised March rate and 3.1% above the April 2021 rate of 1,765,000. Three regions saw increases in authorizations ranging from 1.9% in the Northeast to 9.6% in the Midwest. Only the West region saw a decline (-0.5%). The South saw a 3.3% bump.
Housing starts were at an annual rate of 1,724,000 in April, 0.2% below the revised March estimate but 14.6% above the April 2021 rate of 1,505,000. All regions exhibited increases in starts ranging from 2.2% in the Midwest to 18.4% in the South. A large portion of the starts occurred in the multi-family sector, which was up 42.3% year-over-year.
Housing completions were estimated at an annual rate of 1,295,000, 5.1% below the revised March estimate and down 8.6% year-over-year. Completed units were down or flat in all regions. Trajectories ranged from -2.9% in the Northeast to -12.0% in the South. The West was down 6.7% and the Midwest was flat.
New Home Sales – Sales of new single-family homes in March were at an annual rate of 763,000, reflecting an 8.6% drop from the month prior and a 12.6% decline year-over-year. The median sales price of new houses sold in March was $436,700, reflecting a 21.4% year-over-year increase. The average sales price $523,900) was 26.3% higher than one year ago. Current new home inventory stood at 407,000 units at the end of March representing a 6.4-month supply at the current pace.
In the month of March, an estimated 72 new homes were sold. The most active price range was $500,000+, garnering 37.5% of sales, followed by the $300,000 to $399,999 price range accounting for 29% of sales. Adding the 18% sold in the $400,000 to $499,000 range results in nearly 85% of all new homes sold in March being in the $300,000 to $500,000 price range.
Zonda’s New Home Pending Sales Index (PSI) for March slipped 6.0% month-over-month and 9.8% year-over-year. The Index came in at 147.1 which is 15.6% below cycle highs. Year-over-year increases were highest in Riverside/San Bernardino, New York and Austin. On a two-year basis, San Diego, Indianapolis and Riverside/San Bernardino were the winners. The biggest losers were Baltimore, San Francisco, and Dallas, down 30.9%, 30.8% and 28.1%, respectively.
Home Purchase Sentiment – Fannie Mae’s Home Purchase Sentiment Index (HPSI) decreased by 4.7 points to 68.5 in April as consumers expressed heightened pessimism about housing affordability and the continued upward trajectory of mortgage rates. All six of the index’s components decreased month-over- month with a survey-high 76% of consumers indicating that they believe it is a bad time to buy a home, up from 73% in March. Also, 73% of respondents (a survey high) expect mortgage rates to continue their ascent over the next 12 months. The latest reading shows the full index down 10.5 percentage points, year-over-year.
Mortgage Activity – Mortgage rates are at their highest level in more than a decade but as of May 6th, the condition hadn’t appeared to impede spring home-buying season. According to the Mortgage Bankers Association’s Market Composite Index, purchase applications rose 4.0% over the week. But that was then and this is now. By the following week, (ending May 13th) mortgage application volume, propelled primarily by purchase application activity, had declined 11%. Year-over-year, interest in purchases fell 15.2%.
Mortgage interest rates reached levels not seen in more than a decade, up two full percentage points year-over-year for the week ending May 6th. The average contract interest rate for 30-year fixed rate mortgages with conforming balances rose to 5.53%, the highest since 2008. The higher fixed mortgage rates are skewing the adjustable rate mortgage (ARMs) share which represented 10.8% of total applications, or 19% of total dollar volume. The 5-year ARM averaged 3.98% for the week, up from 2.59% one year prior.
The jump in rates is theoretically expected to slow housing sales activity. However, forecasts call for 4.6% annual growth in purchase origination volume this year. The Mortgage Bankers Association predicts that purchase originations will eclipse $1.7 trillion in 2022, followed by 3% gains in 2023 and 4% in 2024. Source: Mortgage Bankers Association
Ciao for now.