Housing Market Expansion Still On Hold but Resumes Soon

12/14/2010 by Jim Haughey


The key markets drivers in the housing market remain mixed, keeping residential construction steady at a depressed level. Home affordability is at a near record high level and still rising but home sales, remodeling and starts are limited by deep recession level buyer confidence and by widespread restraints on credit access. Nonetheless, pending home sales have improved significantly over the last four months and applications for purchase mortgages has risen strongly in the last two months. Together with the huge fiscal stimulus included in the tax compromise plan likely to be enacted next week, the residential construction recovery should resume early in 2011.

The critical housing market drivers in this cycle are not easily quantified and are not in the table. 15 million homeowners have underwater mortgages and are unable to move. Many of these homeowners are also unable or unwilling to make improvements. At least as many households with incomes normally suitable to buy a home have too low a credit score to get a mortgage or a mortgage at an acceptable rate. Tens of millions of households have too little confidence in the security of their job or income to make a long term financial commitment. And millions more rental households have lost confidence that a home is a good investment as home prices continue to slip lower in most markets.

Depressed confidence, limited credit access and the new conventional wisdom that home ownership is not financially attractive all have to be overcome for residential construction to return to the 1.6-1.8 million housing starts level that is consistent with the underlying demographic trends. It will be a long slow process which will take 4-5 years.

But this process has begun. The election and recent Congressional actions have removed a significant amount of financial uncertainty and are beginning to restore buyer confidence. The pace of foreclosure filings has slowed although the number of home in foreclosure proceedings will not ebb until late 2011. Sustained job growth has begun. The dip to only 39,000 new jobs in November is suspect. Trend job growth is about 100,000 per month and will rise steadily. The new federal fiscal stimulus will significantly boost job growth, raising both home affordability and homebuyer confidence.

Housing Market Monitor — December 2010

Consumer buying power Latest
Year Ago 12-Month
Home Affordability Index NAR Index Sep 179.1 173.4 163.9 172.5
Consumer income growth
(3 mo. annualized % change)
US Commerce Dept. Oct 3.1 2.7 -1.4 3.6
Consumer real income growth
(3 mo. annualized % change)
US Commerce Dept. Oct 0.7 0.9 -4.6 2.0
Employment (000s jobs per month) US Labor Dept. Nov 39 172 64 70
30-Y fixed mortgage rate (Freddie Mac) Freddie Mac Nov 4.32 4.22 4.88 4.71
1-Y ARM (Freddie Mac) Freddie Mac Nov 3.37 3.45 4.41 3.87
Consumer Confidence Index Conference Board Nov 54.1 49.9 49.5 53.5
Household net worth growth
(annual % change)
Federal Reserve Board 2nd Q 5.9 12.8 -15.8 -0.1
New home construction
Permits (000s, annualized) US Census Bureau Oct 550 547 576 605
Sales (000s, annualized) US Census Bureau Oct 283 308 396 330
Starts (000s, annualized) US Census Bureau Oct 519 588 529 591
Homes under construction (000s, annualized) US Census Bureau Oct 430 438 551 476
Homes completed (000s, annualized) US Census Bureau Oct 613 633 751 695
New home inventory US Census Bureau Oct 202 203 242 219
Total new home inventory (month supply) US Census Bureau Oct 8.6 7.9 7.3 8.1
Home sale price (median) US Census Bureau Oct $194,600 $226,300 $215,100 $218,400
Residential contractor hourly wage
(ann. % change)
US Labor Dept. Oct 0.6 0.5 0.0 1.1
Housing market index NAHB/Wells Fargo Nov 16 15 17 16
Existing home competition
Pending home sales index (2001 = 100) NAR Oct 89.3 80.9 114.3 90.1
Home inventory (months supply) NAR Oct 10.5 10.6 7.0 9.1
Homes sold (000s annualized) NAR Oct 4,430 4,530 5,980 5,082
Median existing home sales price NAR Oct $170,500 $171,500 $172,000 172,592
Median home price index
(ann. % change, purchase only)
FHFA Sep -3.4 -2.8 -3.4 -2.3
Remodeling contractor hours worked
(not sea. adj.)
US Labor Dept. Oct 38,052 38,052 38,298 35,692
Mortgage refinancing applications index MBA Nov 15187 18506 11359 13996
NAHB remodeling index NAHB 3rd Q 40.8 40.7 39.2 41.7
Leading Index of Remodeling Activity
(ann. % change)
Harvard Joint Center 2nd Q 1.8 -3.0 -7.9 -6.2

Abbreviations: NAR = National Association of Realtors; NAHB = National Association of Home Builders;
FHFA = Federal Housing Finance Administration
Table: Reed Construction Data and Reed Construction Data – CanaData.

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