July 05, 2012
Economics Group Special Commentary Mark Vitner, Senior Economist mark.vitner@wellsfargo.com ● (704) 383-5635
Anika R. Khan, Senior Economist anika.khan@wellsfargo.com ● (704) 715-0575
Housing Data Wrap-Up: June 2012 The Housing Recovery Gradually Builds Momentum
Even with the overall economy slowing, the budding recovery in the housing market appears to be gradually gaining momentum. New construction during the first five months of 2012 has benefitted from modest gains in employment, increased household formations and resurgent demand for apartments. Milder-than-usual weather also bolstered construction in the Northeast and Midwest during the seasonally slow winter months, which provided builders a little more inventory to sell this spring. New home sales through the first five months of this year are running a solid 18.2 percent ahead of their year-ago pace, and are up 30.7 percent in the Northeast. With demand up, new home construction has increased. Single-family starts are running 20.4 percent ahead of their year-ago pace through May and multi-family starts up a whopping 44.6 percent. Home prices have clearly firmed up. The S&P/Case-Shiller 20-City Home Price Index rose 0.7 percent in April and the March gain was revised up from 0.1 to 0.7 percent. Prices have now increased for three consecutive months and are up at a 6.2 percent annual rate over this period. Seasonally adjusting home prices is difficult, however, particularly given the dramatic swings in prices seen over the last few years. The S&P/Case-Shiller index still shows prices falling 1.9 percent over the past year, but there is little doubt prices have found a bottom. On a regional basis, prices rose in 17 of the 20 markets covered by the S&P/Case-Shiller index, and no markets hit new lows. Prices are bouncing back the fastest in some of the hardest-hit markets, such as Phoenix and Miami. Both areas likely saw prices overshoot to the downside and are now seeing prices rise, as investors chase after “bargain-priced” properties. To drive this point home even further, the latest CoreLogic Home Price Index, which utilizes a similar methodology to S&P/Case-Shiller, shows prices rising 0.4 percent in May, which marks the fifth consecutive increase in this price measure. Median prices for new and existing homes have also improved in recent months, although some of that improvement is simply due to a changing mix of sales. Figure 1
Figure 2 Home Prices
Real Residential Investment
Year-over-Year Percentage Change 24%
24%
18%
18%
20.0%
12%
12%
10.0%
30.0%
Bars = CAGR
Line = Yr/Yr Percent Change
30.0%
Forecast
20.0% 10.0% 0.0%
6%
6%
0.0%
0%
0%
-10.0%
-10.0%
-6%
-6%
-20.0%
-20.0%
-12%
-30.0%
-30.0%
-18%
-40.0%
-24%
-50.0% 2000
-12% Median Sale Price: May @ $182,900 Median Sales Price 3-M Mov. Avg.: May @ 6.2% FHFA (OFHEO) Purchase Only Index: Apr @ 2.6% S&P Case-Shiller Composite 10: Apr @ -2.2%
-18% -24% 96
98
00
02
04
06
08
10
12
Res. Investment - CAGR: Q1 @ 20.0% Res. Construction - Yr/Yr Percent Change: Q1 @ 9.0%
-40.0% -50.0%
2002
2004
2006
2008
2010
2012
Source: U.S. Department of Commerce, S&P/Case-Shiller, FHFA and Wells Fargo Securities, LLC
This report is available on wellsfargo.com/economics and on Bloomberg WFEC
New home sales through the first five months of this year are running a solid 18.2 percent ahead of their yearago pace.
Housing Data Wrap-Up: June 2012 July 05, 2012
The tiny foundation from which the housing recovery is beginning means that even large percentage gains in housing starts will make only a modest contribution to real GDP growth.
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
The Better News Still Needs to Be Kept in Perspective
We have continuously stressed the needs to keep the recent improvement in the housing market in perspective. Even with the recent gains, new home sales and residential construction remain shadows of their former selves. Residential construction currently accounts for just 2.3 percent of GDP, down from 6.3 percent at the peak and 4.5 percent for a more typical period. The tiny foundation from which the housing recovery is beginning means that even large percentage gains in housing starts will make only a modest contribution to real GDP growth. However, with economic growth so slow, particularly now that the European financial crisis is weighing on the factory sector, any help from residential construction will certainly be welcome. We believe housing will add nearly 0.4 percentage points to real GDP growth this year, accounting for nearly one-quarter of the increase in overall growth. Moreover, since we are starting at such a low base, we believe housing can strengthen even as the rest of the economy moderates a bit. While housing will make a positive contribution to growth this year, we believe the headlines will soon become a little less positive. The impact from milder winter weather is probably being understated to a greater extent than widely thought and the payback may seem a bit more abrupt when it finally occurs. Looking past the monthly volatility, we see demand gradually improving. Affordability remains at or near all-time highs and recent gains in existing home sales are beginning to entice more trade-up buyers back into the market. Financing and appraisals still remain a bone of contention. Fannie Mae and Freddie Mac have both seen credit quality improve. Early-stage delinquencies remain well below historic norms and the proportion of seriously delinquent loans has declined at both agencies over the last year. Appraisals also appear to be normalizing in more areas of the country, although they remain fairly conservative on an overall basis and are still keeping many would-be sellers on the sidelines.
Even with some easing in credit standards, home sales continue to be hindered by sluggish growth in household formations.
Even with some easing in credit standards, home sales continue to be hindered by sluggish growth in household formations. Moreover, a larger proportion of households are choosing to rent rather than buy. The first-quarter housing vacancy rate survey shows the number of occupied households increased by 1.011 million units over the last year, with the number of renter-occupied homes rising by 1.503 million units and the number of owner-occupied homes falling by 491,000 units. Two prominent trends apparent in this shift are the recent mobilization of investors to purchase foreclosed homes and convert them into rentals and the larger number of young persons choosing to rent because their employment prospects remain uncertain. Demand for rental apartments remains red hot. According to REIS, apartment vacancy rates slid 0.2 percentage points in the second quarter to 4.7 percent. Asking rents rose 1.0 percent, which was the largest quarterly gain in five years. Effective rents rose an even larger 1.3 percent, reflecting the reduced need for move-in incentives to attract new tenants. Rents were up the most in New York City and also posted large gains in San Francisco, Seattle, Denver and Boston. The strength in apartment demand and the rise in rents has set off a mini-surge in new construction. Multi-family permits have soared 58.4 percent through the first five months of this year and are running well ahead of starts, indicating more construction is on the way.
Recent Housing Data Release NAHB Sentiment Index Housing Starts, Thousands of Units Housing Permits Existing Home Sales, Millions of Ho Percent Change New Home Sales, Thousands of Uni Percent Change S&P Case/Shiller Composite-20
June May May May May May May April
Consensus Actual 28 29 722K 708K 730K 780K 4.57M 4.55M -1.1% -1.5% 347K 369K 1.0% 7.6% -2.50% -1.90%
Prior 29 717K 715K 4.62M 3.4% 343K 3.3% -2.57%
Revised Next Release 28 744K 723K n/a n/a n/a n/a -2.59%
Source: S&P, NAHB, National Association of Realtors, U.S. Dept. of Commerce and Wells Fargo Securities, LLC
2
Jul-17 Jul-18 Jul-18 Jul-19 Jul-19 Jul-25 Jul-25 Jul-31
3.25 3.26 5.04 4.71
216.7 -6.6 172.5 -12.9 -5.3 -12.9
374.0 4340.0 3870.0 464.0
553.9 445.0 108.9
-3.6 -4.4 9.3
2009
3.25 3.22 4.69 3.78
221.8 2.4 172.9 0.2 -3.0 2.1
323.0 4190.0 3708.0 474.0
586.9 471.2 115.7
3.0 -0.7 9.6
2010
3.25 2.78 4.46 3.00
225.8 1.8 166.1 -3.9 -4.3 -3.4
304.0 4260.0 3786.0 477.0
608.8 430.6 178.2
1.7 1.2 9.0
2011
3.25 2.08 4.00 3.10
230.0 1.9 170.8 2.8 1.2 -1.8
350.0 4500.0 4000.0 500.0
730.0 500.0 230.0
1.9 1.4 8.3
3.25 2.35 4.35 3.20
233.5 1.5 172.5 1.0 1.7 1.0
420.0 4675.0 4150.0 525.0
850.0 575.0 275.0
1.6 1.2 8.2
Forecast 2012 2013
Source: Federal Reserve Board, FHFA, MBA, NAR, S&P, U.S. Department of C ommerce, U.S. Department of Labor and Wells Fargo Securities, LLC
Forecast as of: June 29, 2012
4.88 3.66 6.04 5.18
232.1 -6.4 198.1 -9.5 -7.5 -16.7
Home Prices Median New Home, $ Thousands Percent Change Median Existing Home, $ Thousands Percent Change FHFA (OFHEO) Home Price Index (Purch Only), Pct Chg Case-Shiller C-10 Home Price Index, Percent Change
Interest Rates - Annual Averages Prime Rate Ten-Year Treasury Note Conventional 30-Year Fixed Rate, Commitment Rate One-Year ARM, Effective Rate, Commitment Rate
485.0 4913.0 4350.0 563.0
905.5 622.0 283.5
Home Construction Total Housing Starts, in thousands Single-Family Starts, in thousands Multifamily Starts, in thousands
Home Sales New Home Sales, Single-Family, in thousands Total Existing Home Sales, in thousands Existing Single-Family Home Sales, in thousands Existing Condominium & Townhouse Sales, in thousands
-0.4 -0.6 5.8
Real GDP, percent change Nonfarm Employment, percent change Unemployment Rate
2008
National Housing Outlook
Housing Data Wrap-Up: June 2012 July 05, 2012 WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
3
Housing Data Wrap-Up: June 2012 July 05, 2012
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
Building Permits
Housing Starts
Seasonally Adjusted Annual Rate, In Millions
Housing Starts Seasonally Adjusted Annual Rate, In Millions
2.4
2.4
2.2
2.2
2.0
2.0
2.4
2.4
1.8
1.8
2.2
2.2
1.6
1.6
2.0
2.0
1.4
1.4
1.8
1.8
1.2
1.2
1.6
1.6
1.0
1.0
1.4
1.4
0.8
0.8
1.2
1.2
0.6
0.6
1.0
1.0
0.4
0.4
0.8
0.8
0.2
0.6
0.6
0.0
0.4
0.4
0.2
0.0 01
02
0.0 02
03
04
03
04
05
06
07
08
09
10
11
12
0.2
Housing Starts: May @ 708K
0.0 01
0.2
Building Permits: May @ 780K
05
06
07
08
09
10
11
Single & Multifamily Building Permits
12
SAAR, In Thousands, 3-Month Moving Average
Single & Multifamily Housing Starts SAAR, In Thousands, 3-Month Moving Average
2,000
800
1,750
700
1,500
600
2,000
600
1,800
540
1,600
480
1,250
500
1,400
420
1,000
400
1,200
360
750
300
1,000
300 500
200
800
240
600
180
250
100
Single-family Building Permits: May @ 478K (Left Axis) Multifamily Building Permits: May @ 279K (Right Axis)
400
0
0
120
92
200
94
96
98
00
02
04
06
08
10
12
60
Single-family Housing Starts: May @ 499K (Left Axis) Multifamily Housing Starts: May @ 220K (Right Axis)
0
0 87
89
91
93
95
97
99
01
03
05
07
09
NAHB/Wells Fargo Housing Market Index
11
Diffusion Index
Housing Completions
90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
Seasonally Adjusted Annual Rate, In Millions 2.4
2.4
2.0
2.0
1.6
1.6
1.2
1.2
10
10 NAHB Housing Market Index: Jun @ 29.0
0
0.8
0.8
0 87
89
91
93
95
97
99
01
03
05
Housing Completions: May @ 598K 0.4
0.4 87
4
89
91
93
95
97
99
01
03
05
07
09
11
Source: NAHB, U.S. Department of Commerce and Wells Fargo Securities, LLC
07
09
11
Housing Data Wrap-Up: June 2012 July 05, 2012
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
Inventory of New Homes for Sale
New Home Sales
Non-Seasonally Adjusted, In Thousands 600
600 Inventory: May @ 145,000 Completed New Homes: May @ 43,000
New Home Sales Seasonally Adjusted Annual Rate, In Thousands 1,500
1,500
1,300
1,300
1,100
1,100
900
900
700
700
500
500
450
450
300
300
150
150
0
0 300
89
300
New Home Sales: May @ 369,000 3-Month Moving Average: May @ 353,000
100
91
93
100 89
91
93
95
97
99
01
03
05
07
09
95
97
99
01
03
05
07
09
11
Months' Supply of New Homes
11
Seasonally Adjusted
Average and Median New Home Sale Price
14
14
12
12
10
10
In Thousands $350
$350
$300
$300
$250
$250
$200
$200
8
8
6
6
4
4 Months' Supply: May @ 4.7
$150
$150
2
2 90
92
94
96
98
00
02
04
06
08
10
12
Average Sales Price: May @ $273,900 Median New Sales Price: May @ $234,500 $100
$100 97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
Inventory of New Homes for Sale
12
New Homes for Sale at End of Month, 2002=100 220
Median New Home Sales Price
220 Northeast: May @ 55.6 Midwest: May @ 28.2 South: May @ 53.1 West: May @ 45.7
200
20%
20%
15%
15%
10%
10%
5%
5%
0%
0%
-5%
-5%
180
160
140
140
120
120
100
100
80
80
60
60
40
40
20
20
-15%
-15% 91
93
95
97
99
01
03
05
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
-10%
Median New Sales Price: May @ $234,500 Year-over-Year Percent Change: May @ 5.6% 89
180
160
97
-10%
200
07
09
11
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
5
Housing Data Wrap-Up: June 2012 July 05, 2012
WELLS FARGO SECURITIES, LLC ECONOMICS GROUP
Inventory of Existing Homes for Sale
Existing Home Sales
Existing Homes for Sale at End of Month - In Thousands
Existing Home Resales Seasonally Adjusted Annualized Rate - In Millions 7.5
7.5
7.0
7.0
6.5
6.5
6.0
6.0
5.5
5.5
5.0
5.0
4.5
4.5
4.0
4.0
3.5
4,500
4,000
4,000
3,500
3,500
3,000
3,000
2,500
2,500
Total Inventory: May @ 2.5 Million
2003
2005
1,500
1,500 1999
3.0 2001
2,000
2,000
2001
2003
2005
2007
2009
2011
3.5
Existing Home Sales: May @ 4.55 Million
3.0 1999
4,500
2007
2009
Single-Family Home vs. Condo Prices
2011
In Thousands
Existing Single-Family Home Resales
$300
$300
$250
$250
$200
$200
$150
$150
$100
$100
Seasonally Adjusted Annual Rate - In Millions 7.0
7.0
6.5
6.5
6.0
6.0
5.5
5.5
5.0
5.0
4.5
4.5
4.0
4.0
3.5
3.5
3.0
3.0
Existing Home Sales: May @ 4.1 Million
Average Single-Family Price: May @ $231,900 Average Condo Price: May @ $228,600 $50
$50 99
00
01
2.5
2.5 99
01
03
05
07
09
02
03
04
05
06
07
08
09
10
11
12
Pending Home Sales Index
11
Year-over-Year Percent Change
Existing Condominium Resales Seasonally Adjusted Annual Rate - In Thousands 1,000
40%
40%
30%
30%
20%
20%
10%
10%
1,000
900
900
800
800
700
700
0%
0%
-10%
-10%
600
600
500
500
400
Year-over-Year Change: May @ 13.3% -30% 2002
-30% 2003
2004
2005
2006
2007
2008
400 Condo Sales: May @ 500,000
300
300 99
6
-20%
-20%
00
01
02
03
04
05
06
07
08
09
10
11
12
Source: National Association of Realtors and Wells Fargo Securities, LLC
2009
2010
2011
2012
Wells Fargo Securities, LLC Economics Group
Diane Schumaker-Krieg
Global Head of Research (704) 715-8437 & Economics (212) 214-5070
diane.schumaker@wellsfargo.com
John E. Silvia, Ph.D.
Chief Economist
(704) 374-7034
john.silvia@wellsfargo.com
Mark Vitner
Senior Economist
(704) 383-5635
mark.vitner@wellsfargo.com
Jay Bryson, Ph.D.
Global Economist
(704) 383-3518
jay.bryson@wellsfargo.com
Scott Anderson, Ph.D.
Senior Economist
(612) 667-9281
scott.a.anderson@wellsfargo.com
Eugenio Aleman, Ph.D.
Senior Economist
(704) 715-0314
eugenio.j.aleman@wellsfargo.com
Sam Bullard
Senior Economist
(704) 383-7372
sam.bullard@wellsfargo.com
Anika Khan
Senior Economist
(704) 715-0575
anika.khan@wellsfargo.com
Azhar Iqbal
Econometrician
(704) 383-6805
azhar.iqbal@wellsfargo.com
Tim Quinlan
Economist
(704) 374-4407
tim.quinlan@wellsfargo.com
Ed Kashmarek
Economist
(612) 667-0479
ed.kashmarek@wellsfargo.com
Michael A. Brown
Economist
(704) 715-0569
michael.a.brown@wellsfargo.com
Joe Seydl
Economic Analyst
(704) 715-1488
joseph.seydl@wellsfargo.com
Sarah Watt
Economic Analyst
(704) 374-7142
sarah.watt@wellsfargo.com
Kaylyn Swankoski
Economic Analyst
(704) 715-0526
kaylyn.swankoski@wellsfargo.com
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