New Ways to Read Eye on Housing

We’ve made some changes recently to Eye on Housing that will expand our readership. These are the first of a set of changes that will be rolled out over the coming months.

First, you can find us at our old address (www.eyeonhousing.wordpress.com) or our new address (eyeonhousing.org).

Old bookmarks will continue to work, although we will be promoting the new address from now on. Subscriptions, real-time feeds and links will also continue to work. We are just mirroring the site with a new address.

We also encourage our readers to follow our updates via a number of Twitter accounts:

All Eye on Housing posts are published at:

@NAHBMedia

Our research can also be found on NAHB’s main twitter account:

@NAHBhome

And you can follow NAHB economist Robert Dietz at:

@dietz_econ

Thank you for reading, posing questions, and helping us to grow this forum. We’re three years in and are averaging thousands of housing community readers daily.

The Delayed American Household

According to a recent report by the Census, married couples with children account for only 19.6% of all households in the U.S.  The new figure represents a drop of 4.5 percentage points from 2000 when 24.1% of all households in the U.S. were married couples with children. The share of total households in 1970 was 40.3%.

As the share of households that include married couples with children decreased, one-person households and other household types rose. The share of one-person households increased from 17.1% in 1970 to 27.5% in 2012.

The dramatic decline in married households with children is due in part to delays in household formation. Researchers point out that Americans, on average, are waiting 5 years longer to get married when compared to 1970. Additionally, Americans are waiting longer to have children. The average age at first birth in 2006 was 25 compared to the average age at first birth age of 21 in 1970.

While delays in household formation place downward pressure on the demand for single-family homes, the increasing share of those living alone places an upward pressure on the demand for rental units. Trends in new multifamily construction suggest builders and developers may be taking delayed household formation into account. The share of multi-family homes built for rent increased from an historic low of 47% during the third quarter of 2005 to above 90% in 2013. Additionally, the size of units built for rent remains relatively small when compared to owner-occupied units. The median size of rental apartments was 1,081 square feet in 2012.

In fact, builder and developer sentiment about current conditions in the apartment and condominium market are at all time highs. In the second quarter of 2013, the Multifamily Production Index MPI increased nine points to 61. The (MPI) is measured on a scale of 0 to 100 so that any number over 50 indicates that more respondents report improving conditions than worsening conditions.

Although builders and developers appear to be well positioned to take advantage of the trends in household formation, it is important to recognize that delayed household formation does not mean these household are not eventually formed. Instead, many individuals will eventually marry and have children or form other household types.

Other household types (family and nonfamily) increased from 12.3% in 1970 to 23.9% in 2012. Other family households include one-parent families, about half of all respondents in 2012, with the remainder being families that include an unmarried householder and relative(s). The share of households that include couples without children has been remarkably stable, near 30%.

Consumer Prices Increasing at a Slower Pace

In August, consumer prices rose by 0.1% on a seasonally adjusted month-over-month basis according to data released by the Bureau of Labor Statistics (BLS). Over the past twelve months, prices on expenditures made by urban consumers increased 1.5% before seasonal adjustments.

The August release shows a slower pace of growth in prices for urban consumers for the second consecutive month. In July, the Consumer Price Index – Urban Consumer (CPI) increased by 0.2% month-over-month. In June, the Consumer Price Index – Urban Consumer (CPI) increased by 0.5% month-over-month.

The slower pace of growth in the CPI reflects a drop in energy prices, especially energy commodities such as natural gas. The Energy Price Index decreased by 0.3% month-over-month in August after rising slightly by 0.2% in July. The index for natural gas fell 2.3% month-over-month in August after a 2.8% decrease in July.

Core CPI, which excludes more volatile food and energy prices, rose by 0.1% month-over-month in August, down from the 0.2% increases observed in May, June, and July. Over the past twelve months, Core CPI increased by 1.8%.

Increases in the prices for medical care and shelter largely offset the decrease in energy prices. The medical care services index increased by 0.7% month-over-month in August. The shelter index increased by 0.2% over the same period. About one-third of the average consumers expenditure’s are shelter costs. Therefore, a 0.2% month-over-month increase represents a significant share of the current increases in both headline and core CPI.

The increase in the shelter index partly reflects increases in rental prices. However, the BLS measure does not isolate the change in rental prices from the changes in the overall price index. To isolate the change in rental prices, NAHB constructs a real rent price index. This measure indicates whether inflation in rents is faster or slower than general inflation and provides some insight into the supply and demand conditions for rental housing, after controlling for overall inflation.

Recently, real rental prices have begun to rise after a large drop in 2009. The real rent index has increased for seven consecutive months. In August, the real rent index rose by 0.2%. Over the past year, the real rental prices have risen by 1.2%. The increase in real rental prices corresponds with a decrease in the rental vacancy rate.

New Index Shows Regulation High in New England, Pacific States

A recent study is the first to construct an annual measure of housing supply regulations for the contiguous United States. The new housing supply regulation index constructed by Peter Ganong and Daniel Shoag examines the scaled count of state appeals court decisions that mention “land use.” States with a higher share of court decisions mentioning “land use” are thought to have more restrictive housing supply regulations. The higher the index, the greater the share of court decisions mentioning “land use.”

In 2010, the state with the highest index was Maine at 3.388 followed by New Hampshire at 2.407. The state with the lowest index was Alabama at 0.077 followed by Louisiana at 0.101. The median index for the 48 states measured was 0.4275.

The map below splits states into quartiles based on the newly constructed index for 2010.

States in the lowest quartile, thought to have the least restrictive housing supply regulations, are concentrated in the south. States in the highest quartile, thought to have the most restrictive housing supply regulations, are New England and Pacific states.

Although not an annual series, the Wharton Residential Land Use Regulatory Index (WRLURI) provides a valid comparison for the newly created index. The WLURI index was created from a 2005 survey of 2,600 communities across the U.S. The survey asked local officials a series of questions about the land use regulatory process, rules of local residential land use regulation, and outcomes of the regulatory process. Consistent with the findings of Ganong and Shoag, the WRLURI index shows New England and Pacific states to be highly regulated when compared to other regions.

The new index provides a tool in future research on housing supply regulation. Using the index the authors have already shown changes in housing supply regulation to be strongly predictive of housing prices. These results are consistent with research conducted by NAHB, which finds a quarter of home prices are attributable to various regulatory costs.

Consumers Expecting Higher Interest Rates

Another set of monthly mixed results for consumer confidence was reported as the Consumer Sentiment Index decreased while the Consumer Confidence Index increased slightly.

According to Thomson Reuters and the University of Michigan, the Consumer Sentiment Index fell in August by 3 points from the previous month’s six-year high of 85.1. Meanwhile after declining in July, the Conference Board reported that the Consumer Confidence Index increased slightly by 0.5 points, 0.6%, on a month-over-month seasonally adjusted basis in August to 81.5.

After sustained gains in both indices at the end of 2012 and the start of 2013, both measures of consumer confidence have leveled off in recent months as slow growth continues for employment and the national economy.

According to the Conference Board, the share of consumers planning to buy a home in the next 6 months fell slightly in August. The share of consumers planning to buy a home in the next 6 months fell by 0.1 percentage point to 5.8% on a seasonally adjusted 3-month moving average basis. Over this same period, the share of respondents planning to purchase a “lived-in” home was 3.6% and the share of respondents planning to purchase a new home was 1.1%.

The leveling off in the share of consumers planning to purchase a new home may capture the effect of increasing mortgage interest rates. In fact, the share of respondents expecting higher interest rates in the next 12 months increased in August by 5.4 percentage points to 66.2% on a seasonally adjusted 3-month moving average basis. The last time consumer expectations for higher interest rates were this high was September 2006.

Construction Spending: Improving at a Slower Rate

Total private residential construction spending increased marginally to a seasonally adjusted annual rate of $334.6 billion in July 2013 according to Census estimates. Spending continues to improves, but remains well below the peak pace of $676.4 billion in March 2006. The current reading is 17.2% higher than a year ago.

Single-family spending registered a slight increase of 0.5% for the month, while the home improvement category increased 0.8%. The multifamily category remained nearly unchanged with an increase of 0.1% for the month.

In spite of the tepid month-over-month increases for July, on a 3-month moving average basis, all categories have experienced significant improvements over the course of 2013. Remodeling related spending is up 6.5% for the year-to-date. Single-family spending has increased by 11.6% and multifamily spending has increased 16.0%.

Since market low points, total private residential construction spending is up 46.4%, single-family 84.5%, multifamily 143.8%, and improvement-related spending 29%.

The data shows improvements in construction categories for all categories but at a slower month-over-month rate than experienced in recently. The slow-down comes ahead of the effects of an increase in mortgage interest rates that has slowed both new home and pending home sales.

More Americans Move in 2012

According to the Current Population Survey (CPS) conducted by the U.S. Census Bureau in 2012, 35.3 million individuals moved within the United States. This increase in moves is an important component of pent-up housing demand.

An individual is classified as a mover if the place of residence at the March survey differs from the place of residence one year earlier. In 2012, nearly 12 out of every 100 Americans moved. The share of the population that moved within the U.S. increased from 11.3% to approximately 11.6%. The 2012 estimate represents an increase of nearly four percent or 1.3 million more individuals moving over the prior period. However, moves remain well below the levels early in the 2000s when more than 14% of the population moved.

The data shows the largest share of movers within the U.S. move within the same county at 66.5% in 2012. The share of movers within the U.S. moving to different counties within the same state increased from 17.4% to 19.2% in 2012. The share of movers within the U.S. moving to different states increased from 14.1% to 14.3% in 2012.

According to the 2012 CPS, the most common reason for moving was to upgrade housing. It is estimated that roughly 16% of those moving in 2012 did so because they wanted a new or better home or apartment. The next distinguishable category of movers at 10.7% did so to establish own household, followed by 9.5% moving because of a new job or job transfer.

The fourth largest discernible category of movers, those moving to cheaper housing, declined for the fourth straight year. After hitting a high of 4.1 million in 2009, those moving to cheaper housing declined to under 3.3 million.

Geographic mobility, the measure of how populations move over time, fluctuates from year to year depending on demographic and economic conditions. The high point came in 2006 when just over 38.5 million individuals moved. The total number of movers fell by 4.5 million to just over 34 million by 2008.

The ability of individuals to move is important for a healthy labor markets as individuals move to better job opportunities. The ability of individuals to move is also important for a healthy housing market as individuals relocate to obtain housing that better fits their needs.

Of course in recent years, some analysts have tied declining household mobility with negative home equity. Under this argument, individuals were essentially “locked-in” to property because selling would force the realization of a significant loss.

Recent research by economists at the Federal Reserve challenges, in part, this claim. The Fed economists found that the combination of negative home equity and a household economic shock (such as job loss) boosted household mobility. In contrast, households with just negative home equity were found to have similar mobility rates as other households.

Overall , the recent CPS data suggest household mobility is on the rise. The large increase in moves to different counties and the reasons for moving are promising for future home sales growth.

New Home Sales Falter

The annual rate of new home sales dropped 13.4% to an annual rate of 394,000 in July. All four census regions experienced a decline ranging from 5.7% in the Northeast to 16.1 % in the West. The July rate takes annual sales levels back to the late 2012 levels and below the 448,000 first half of 2013 average.
The decline is the result of the jump in mortgage interest rates that began in May and accelerated in late June. New homes sales are recorded when the home buyer signs a contract to purchase so the July signings will not close their purchase for several months. The rise in mortgage rates first caused some acceleration in contract signing as June sales as which were 3.6% above May even as mortgage rates rose about 50 basis points. Further increases caused buyers to pause in July to determine if those new heights were permanent.
The NAHB/Wells Fargo Housing Market Index continues to show improving builder sentiment suggesting the new home sales dip is temporary as consumers adjust to permanently higher interest rates. Affordability could have some impact as some buyers are no longer able to qualify at the higher rates but rising prices have not diminished demand up to this point. The rise in prices alone has increased monthly mortgage payment 8 % in one year about the same as a 70 basis point increase in rates.
NAHB’s forecast for new home sales remains at 470,000 for 2013 or 28% increase over 2012 levels. Pent up demand, an improving economy, continued advancement in home prices and low mortgage rates by historic standards will support this level.

Living at Home as an Investment

Even with improving economic conditions, a record number of Millennials live with their parents. According to a recent study published by the Pew Institute, the share of the U.S. population aged 18 to 31 living in their parent’s home increased to 36 percent or a record 21.6 million young adults in 2012. The share of the same age group living with parents prior to the start of the Great Recession was 32 percent and 34 percent at the end of the Great Recession in 2009.

This growth has largely been attributed to three factors; declining employment, increasing college enrollment, and declining marriage. And these changes are part of an overall increase in the establishment of multigenerational households.

For a generation coming of age during the worst economic crisis since the Great Depression, this may appear to be more bad news. However, a closer look shows the increase is partly due to more investment in human capital. Facing reduced employment opportunities and poor earning potential without a college degree, in 2012 a record 38.9 percent of individuals aged 18 to 24 enrolled in college.

College enrollment increases the number of those living with parents in two ways, one economic and one technical. The economic is choosing to live at home while pursuing a degree. The technical is through the fact that in the data college students are often counted as living at home.* Dormitory-living is not counted as a distinct independent household.

The increase in college enrollment has significant implications on the future economic well-being of Millennials. On the one hand, those with a college degree have a much higher earning potential than those without a college degree. On the other hand, the cost of attending college is increasing and according to the Chronicle of Higher Education nearly 60 percent of all students borrow annually to help cover costs. Additionally research from the Federal Reserve Bank of New York shows year-after-year increases in loan delinquency and average student debt per borrower.

The economic well-being of those 18 to 31 is of particular interest as these individuals represent future consumers of housing. At some point, many of the 21.6 million Millennials living at home will move out. Past trends suggest most of these new households will be renters first.

Nonetheless, the housing choices they make will be influenced by policy decision made today. Those policy decisions will need to take into account lessons from the housing market crisis and the economic realities of a generation coming of age during the Great Recession. Fundamentally, policies that make it more difficult to purchase a home with a mortgage – via housing finance or tax reform – will have distinct impacts on Millennials.

* Data footnote: An adult is considered to be “living at home” or “living with parents” on the basis of the adult’s relationship to the head of the household. The Census defines individuals who are temporarily absent as household members even though they are not present in the household during the survey week. College students compose the bulk of such absent household members.

55+ HMI Index Soars in 2nd Quarter

All components of NAHB’s 55+ Housing Market Index showed major growth in the 2^nd Quarter of 2013. Compared to the 2^nd Quarter of 2012, both the single-family and the multifamily indices jumped 24 points: the single-family from 29 to 54 points, and the multifamily from 19 to 43 points.  Both indices are comprised of several components and all of the components posted substantial gains.  For the 55+ single-family index, presents sales climbed 24 points to 54, expected sales climbed 25 points to 60, and traffic of prospective buyers climbed 26 points to 48.  On the multifamily side, present sales rose 26 points to 44, expected sales rose 26 points to 46, and traffic of prospective buyers rose 19 points to 38.  An index number above 50 indicates more builders view conditions as good than poor.