Green Building Features

July 2, 2014

A focus on energy efficiency is the most important development and design strategy that is making new housing greener according to a recent industry survey.

McGraw Hill Construction’s (MHC) data and analytics team surveyed a set of NAHB single-family and multifamily members in 2013. The survey found that 62% of single-family builders and 54% of multifamily developers are doing more than 15% of their projects as green. For single-family, 19% of builders are doing more than 90% projects as green.  The survey indicates that increasing consumer interest is a reason for growth in this area. MHC defines a green homes as “one that is either built to a recognized green building standard or an energy- and water-efficient home that also addresses indoor air quality and/or resource efficiency.”

green features

According to the report, 75% of single-family and 84% of multifamily builders indicated that improved energy efficiency was a factor making their projects more green than two years ago.

The second leading factor was improved indoor environmental quality. 58% of single-family builders and 55% of multifamily developers cited this as a reason why their current projects are more green.

Other leading factors include more water conserving products/practices and material conservation and recycling.

However, the data from the survey also show that only 11% single-family builders and remodelers are constructing homes that are greener in 2013 than in 2011. This result makes sense given the start and stop nature of the housing recovery and tight credit conditions of recent years.


Residential Construction Spending up 7.5% from One Year Ago

July 1, 2014

The latest Census estimate of total private residential construction spending is 7.5% higher than one year ago. In particular, the release shows significant improvement in construction spending for the single-family and multifamily categories. From May 2013, on a 3-month moving average basis, single-family construction spending increased by 12.3% and multifamily construction spending increased by 33.0%. The current seasonally adjusted annual rate for total private residential construction spending is $354.8 billion.

Chart_1

The current reading, however, is 1.5% lower than the revised April estimate. The three components of residential construction all fell in May. The home improvements category fell 1.9%, single-family spending fell 1.4%, and multifamily spending fell 0.6%.

The month-over-month decline in May should be considered along with the growth from last year.  If builder sentiment is a guide for future construction spending, cautious optimism is in order. The NAHB/Wells Fargo Housing Market Index for June rose four points to 49.


Housing Kicks into Gear

June 30, 2014

Pending home sales in May posted the largest monthly increase since the expiration of the first-time home buyer tax credit in April 2010. The Pending Home Sales Index (PHSI), a forward-looking indicator based on signed contracts reported by the National Association of Realtors (NAR), increased 6.1% in May to 103.9 from an upwardly revised April level of 97.9. It is important to note that the May reading was down 5.2% on a year-over-year basis.

Pending Home Sales May 2014

The May PHSI increased in all regions, ranging from 8.8% in the Northeast to 4.4% in the South. Year-over-year, however, only the Northeast posted a small increase of 0.2%. The three remaining regions all fell on a year-over-year basis ranging from a 2.9% decrease in the South to an 11.1% decrease in the West.

Last week, Census reported an 18.6% increase in May new home sales, and NAR reported a 4.9% increase in May existing home sales. The May increase in the PHSI suggests that the existing home market will continue to improve this summer as the market recovers from a disappointing winter period. The growth in household formations and strong pent-up demand will maintain that momentum throughout this year.


Contract Rate on New Home Loans Dips Under 4 Percent

June 26, 2014

On average, mortgage interest rates declined in May, according to data released earlier today by the Federal Housing Finance Agency (FHFA).  On conventional mortgages used to purchase newly-built homes, the average contract interest rate dropped by more than 30 basis points, from 4.19 to 3.88 percent.  This is the lowest the new home loan rate has been in a year and the first time it has dipped below 4.0 percent since February.

Contr Rate May 14

Initial fees increased slightly during the month, from 1.22 to 1.25 percent—far from enough to offset the decline in the contract rate.  The result was an average effective rate on new home loans (which amortizes initial fees over the estimated life of the loan) that also dropped by more than 30 basis points, staying barely above 4.0 percent (at 4.01).

Eff Rate May 14

Reversing the trend of the prior two months, the average size of conventional mortgages used to purchase new homes—and the price of the new homes purchased with the mortgages—both declined in May.  The average loan size declined 1.8 percent to $319,800, while the average home price fell by 3.6 percent to $418,800.  Despite the declines, both the average loan size and average new home price remain higher than they had been at any time prior to 2014.

Because the change in price was greater than the change in loan size, the average loan-to-price ratio on conventional mortgages used to purchase new homes increased substantially in May, from 77.0 to 78.6 percent—the highest it’s been since last August, and the first time above 78.0 percent in 2014.

LTP May 14

This information is based on FHFA’s Monthly Interest Rate Survey (MIRS) of loans closed during the last five working days in May. For other details about the survey, see the technical note at the end of FHFA’s June 26 news release.


Housing’s Other Contribution to GDP

June 26, 2014

Housing added 0.7 percentage points to real GDP growth in the first quarter of 2014, however the construction component (residential fixed investment) detracted from growth over the past two quarters owing to the poor weather conditions seen across the country over the period. In addition, housing accounted for 15.6 percent of total real GDP, which is low from a historical perspective.

 
The price component of GDP is becoming more interesting, however. Starting in 2012, housing has been contributing more to prices, for the most part, as seen in the figure below. In the first quarter of this year, it added over 0.7 percentage points to growth in the GDP price index, led by nearly 0.5 percentage points in the construction component (the most since the third quarter of 2008); the overall price index rose 1.3 percent. This is partly due to increased construction costs and higher rental prices.

GDP Price

Currently, overall inflation remains subdued and is within the Federal Reserve’s comfort zone. But moving forward, if housing becomes an even larger share of GDP, it would likely place upward pressure on inflation measures in general.

 


GDP Growth, First Quarter, Third Estimate – Let’s Move On

June 25, 2014

The Bureau of Economic Analysis (BEA) released the third estimate of real GDP growth for the first quarter of 2014. Real GDP contracted at a 2.9% seasonally adjusted annual rate, down from +0.1% growth in the first (advance) estimate, and -1.0% in the second estimate.

The downward revision to the third estimate was concentrated in personal consumption expenditures (PCE) and trade. PCE grew at a 1.0% annual rate rather than the 3.1% in the second estimate, shaving 1.4 percentage points from growth. Exports contracted faster and imports expanded faster than previously estimated, reducing growth by an additional 0.5 percentage points in the third estimate.

Early indications are that the second quarter numbers will be much stronger. Let’s move on.

 blog gdp 2014_06


Eye on the Economy: Builder Confidence and Home Sales on the Rise

June 25, 2014

Housing news turned positive this week as spring gave way to summer. Future data will confirm whether the recent turn in momentum reflects a return to the improving trend that was in place before the end of 2013, but early signs are encouraging.

New single-family home sales reached their highest pace in six years in May. According to estimates from the Census Bureau and HUD, new home sales were at a seasonally adjusted annual rate of 504,000 in May, a gain of 18.6% over a slightly downwardly revised April (425,000). The May 2014 rate of sales is the highest since May 2008 and is a significant increase from the winter low point for sales in March (410,000).

The May pace of sales was certainly an improvement over the soft patch experienced from February through April. The most recent gains are likely due to a payback for weather-related declines during the winter, so future months will indicate whether a better trend has taken hold. But encouraging signs like better jobs numbers are consistent with this outcome.

Another improved indicator is the NAHB/Wells Fargo Housing Market Index (HMI), which rose four points in June to 49. This is just shy of the 50 mark, indicating at least as much optimism as pessimism among single-family home builders. The index dipped 10 points to 46 in February from a sustained above-50 mark for eight months and remained near there for four months. The June gains were experienced in all the components of the HMI: current sales, expected sales and traffic.

Alongside the positive new home sales report was the May existing home sales measure. The National Association of Realtors reported that existing home sales were up 4.9% from April to May. While still 5% lower year over year, the 4.89 million seasonally adjusted annual rate confirmed a turn in the decline that had been in place since the middle of 2013. Year-over-year declines in existing home sales, which distinguish this market from the growing new home market, are likely due to recent drops in distressed and investor purchases, as well as the 2014 expiration of a tax rule connected to short sales.

The one negative housing report in recent weeks was construction starts. The Census Bureau and HUD estimated that total housing starts declined 6.5% in May. Single-family starts were down 5.9%, while multifamily construction in properties with five or more units was down a larger 8.3%. The declines were a result, in part, to April’s numbers, where were among the highest since the end of the recession. On a year-over-year basis, the May pace of single-family construction was 4.7% higher and 19.2% higher for five-plus multifamily building.

Home price appreciation appears to be slowing after the strong gains of the past year or two, propelled by increases in areas that experienced some of the largest price declines during the recession. House prices grew by 10.8% between April 2013 and 2014, according to the S&P/Case-Shiller 20-City Composite Home Price Index, which was less than the 12-month growth rate of 12.4% seen in March. Similarly, the Federal Housing Finance Agency’s Purchase-Only Index rose 6% compared to 6.4% in March. Both indices show that annual house appreciation slowed from December to April and suggest the housing market may be returning to its long-run growth trend.

Consistent with the weak housing reports from the winter and early spring, the final estimate of first quarter GDP indicated that the economy contracted as a 2.9% rate, the worst quarter in five years. Besides disappointing investment numbers, personal consumption growth was anemic and exports displayed particular weakness. Part of the poor performance was weather related and other one-off factors. Second quarter GDP growth should reflect some payback for deferred economic activity and post a growth rate higher than 3%.

Common measures of general prices and inflation, moved in opposite directions in May. Producer prices declined 0.2%, after notable increases of 0.5% and 0.6% for March and April respectively. Among building materials, softwood lumber prices rose 1% in May from April. Prices are 28% above the average level over 2011. OSB prices have flattened out in 2014, declining 0.7% in May. Prices are 23% above the average level over 2011. Gypsum prices declined 0.7% in May, 41% above the average 2011 mark.

In contrast, consumer prices in May experienced the largest monthly increase since February 2013, rising 0.4% on a seasonally adjusted month-over-month basis and 2.1% year over year. The increase was broad, affecting many items found in the consumer basket such as energy, food and shelter. The NAHB constructed real rent index increased nominally in May. Over the past year, real rental prices rose by 1.1%.

The Federal Open Market Committee, the Federal Reserve’s monetary policy committee, announced this week that the pace of asset purchases (quantitative easing) will be reduced by another $10 billion to $35 billion per month. The federal funds rate will continue to remain at the current near zero level for a “considerable time” after asset purchases have concluded.

In analysis news, economists at NAHB mapped the change in county-level housing permit activity for 2013. Overall, 1,807 counties and county equivalents saw an increase in the number of single family permits issued over the prior year while 858 saw a decrease. According to data from Hanley-Wood, there was some movement among the rankings of the top ten publicly traded home builders in 2013, although D.R. Horton maintained the top spot with more than 25,000 closings.

Additionally, NAHB economists discussed land banking and new mortgage application data for new homes. Lastly, data for the first quarter of 2014 revealed that property taxes, the top revenue source for state and local government, made up 40.3% of receipts from major sources over the last four quarters – an important reminder of the role real estate plays in local economies.


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