BOWDEN’S MARKET BAROMETER
DOING WHAT IT DOES BEST
In the most recent edition of BMB, we had the pleasure of announcing the inaugural Meyer’s Research LLC New Home Pending Sales Index. The index, published mid-month, showed a significant 14.3% increase in new home sales, year-over-year.
Two weeks later, the National Association of Realtors (NAR) Pending Homes Sales Index (PHSI) was published, showing a much lower 7.4% year-over-year increase. The disparity between the two piqued our interest, so we began to dig.
In addition to a two-week swing in publication dates, the primary distinction between the two indices is, obviously, the product analyzed. The Meyer’s NHPSI measures new homes under contract while the NAR PHSI measures existing home pending transactions.
A comparison of the two indices suggests that new construction is being welcomed by the consumer, translating to stronger building activity. Privately-owned housing units authorized by building permits in December were at an annual rate of more than 1.4 million for a 6%+/- year-over-year increase, while housing starts came in at more than 1.6 million, reflecting a whopping 40.8% y/y increase. In both cases, approximately two-thirds of the activity was for single-family homes.
Zillow reports that there were more than 120,000 fewer homes for sale at the end of the year, reflecting a 7.5% year-over-year decline. Low for-sale housing inventory has become the bane of our industry’s existence as household formations have far outpaced housing starts for several years now, resulting in potential first-time buyers becoming renters. Estimates show more than 123 million household formations as of September 2019, while the average number of single-family housing starts has hovered just above 820,000 for the last five years, suggesting a shortage of more than 400,000 units per year, on average.
New home construction activity is a prerequisite to our industry’s health. Just 3.5% of all U.S. housing units have been constructed since 2014 and approximately two-thirds of standing inventory is more than 30 years old, suggesting a significant amount of both functional and economic obsolescence. So . . . let’s keep those housing starts coming!