Home Prices Decline Again

Single-family home prices in the United States fell in November, a closely watched survey showed, putting the average price down to a level last seen in 2003.

New Home Sales at Highest Point in Two Years

Sales of new single-family homes increased to a seasonally
adjusted annual rate of 369,000 in May from a rate of 343,000 in April
according to figures released this morning by the U.S. Census Bureau and the
U.S. Department of Housing and Urban Development.  The month-over-month increase from the
slightly revised April number was 7.6 percent and May’s figure was 19.8 percent
higher than the new home sales estimate of 308,000 in May 2011.

The median price of a newly constructed single family home
was $234,500 and the average was $273,900. 
In May 2011 the median and average prices were $222,000 and $262,700

Sales in the Northeast region were at a seasonally adjusted
rate of 41,000, a 36.7 percent increase from April and up 127.8 percent from a
year earlier.  In the Midwest sales were
down 10.6 percent to 42,000 an increase of 2.4 percent compared to May
2011.  Sales in the South increased 12.7
percent to a 204,000 unit rate, a 16.6 percent year-over-year change and in the
West there were 82,000 sales, down 3.5 percent month-over-month but up 10.8
percent on an annual basis.

Sales on a non-seasonally adjusted basis totaled 35,000 nationally
in May compared to 33,000 in April.  More
than half (19,000) of the sales were in the Southern region.

At the end of May there were an estimated 145,000 new homes
for sale which represents a supply of 4.7 months at the current sales
rate.  One year earlier there were
169,000 homes available, representing a 6.6 month supply.  The average house for sale has been on the
market for 7.9 months
since construction was completed.

New Home Sales

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Permits Rise in May; April Figures Better than First Reported

The U.S. Census Bureau and the
Department of Housing and Urban Development reported this morning that permits
for the construction of new privately-owned residential construction jumped 7.9
percent in May.  This results in a
seasonally adjusted annual rate of 780,000, up from an upwardly revised level
of 723,000 permits in April.  The April
number was originally reported at 715,000. 
The pace of permitting in May is 25 percent higher than the 624,000
permits reported in May 2011.

Permits for single-family construction
were at a rate of 494,000, up 4.0 percent from the 475,000 reported in
April.  Multi-family permits (units in
buildings of five or more units) were at the rate of 266,000, compared to a revised
226,000 rate (originally reported at 217,000) in April.

Building Permits

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Housing starts fell by 4.8 percent to a
seasonally adjusted annual rate of 708,000; a 28.5 percent increase from one
year earlier.  In April there were
744,000 starts, a substantial upward revision from the 717,000 pace originally

Single family starts were at an adjusted
rate of 516,000, up 3.2 percent from the revised April figure of 500,000, 8,000
higher than originally reported.  The May
figure was 26.2 percent higher than that reported in May, 2011.  Multifamily starts were at a rate of 179,000,
down 24.2 percent month-over-month but 31.6 percent higher than one year

Housing Starts

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Housing completions were at a rate of
598,000, a 10.3 percent drop from April but 10.1 percent higher than in May
2011.  Single-family completions were at
the rate of 458,000, down 6.3 percent from April’s 489,000.  Units in multi-family buildings were
completed at an annual rate of 130,000.

The pace of permitting rose in three of
four regions, falling by 8.0 percent in the Northeast but rising 6.1 percent in
the Midwest, 11.1 percent in the South, and 10.5 percent in the West.  Housing starts however rose only in the West,
by 14.4 percent.  They fell in the
Northeast by 20.3 percent, in the Midwest by 13.3 percent, and in the South by
6.1 percent.

At the end of the reporting period there
were 88,900 units with permits for which construction had not started.  Nearly half of these (39,100) were for construction
of units in multi-family buildings and 24,900 of those were located in the

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Builders Voice Current Optimism; Cautious on Future Gains

The National Association of Home Builder’s
(NAHB)/Wells Fargo Housing Market Index (HMI) ticked up one point this month to
reach its highest point since May 2007.   The HMI is a measure of builder confidence in
the health of the new home market. 

The HMI was at 29 in June compared to a revised
index of 28 in May.  The index is based
on a monthly survey of NAHB’s homebuilder members who are asked to assess the
market using three measures.  What is their
perception of current single family home sales, “good,” “fair,” or “poor?”  What do they expect sales to be over the next
six months on the same scale; and do they rate the current traffic of
prospective buyers as “high to very high,” “average,” or “low to very low?”  Each component is scored separately and also
used to construct the HMI.  A score of 50
on any of the four indices indicate that more builders view the market as good
than poor.

The June increase in the HMI came from increased optimism
over current sales while builders remain cautious about future prospects.  The component measuring current sales rose two
points to 32, the highest score since April 2007.  However, the components measuring sales
expectations over the next six months and current buyer traffic remained unchanged
at 34 and 23 respectively.

“This month’s modest uptick in
builder confidence comes on the heels of a four-point gain in May and is
reflective of the continued, gradual improvement we are seeing in many
individual housing markets as more buyers decide to take advantage of today’s
low prices and interest rates,” said Barry Rutenberg, chairman of NAHB. 

Regionally, the HMI results were
mixed in June, with the Midwest registering a five-point gain to 31 and the
West a four-point gain to 33.  The
Northeast and South each posted two-point declines, to 29 and 26, respectively.

“While the June HMI is in keeping
with our forecast for gradually improving single-family home sales this year,
recent economic reports that have shown some weakening in the pace of recovery
likely factored into the marginal gain,” said NAHB Chief Economist David Crowe.
“In addition, builders across the country continue to report that overly tight
lending conditions and inaccurate appraisals are major obstacles to completing
sales at this time.”

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Harvard’s State of Housing Report Says Home Construction Now Adding to GDP

Steadier job growth and improving
consumer confidence are now boosting home sales and home prices may finally
find a bottom this year according to the latest State of the Nation’s Housing report released this morning.  The report, produced by the Joint Center for
Housing Studies of Harvard University, says further that stronger home sales
should pave the way for a pick-up in single-family construction over the rest
of 2012.

Conditions, however, will keep this
recovery “subdued.”  The backlog of
nearly 2 million loans in foreclosure means that distressed sales will remain
elevated and will keep a downward pressure on prices and another 11.1 million
homeowners are underwater on their mortgages, dampening both sales of new homes
and investment in existing units.  While
vacancies have been declining the report notes, they still remain well above
normal, holding down demand for new construction in many markets.

What the for-sale market needs most, the
authors say is a sustained increase in employment.  This might in turn bring household formation
back to normal levels.  The depressed
pace of homebuilding has been a major factor in hiring and pulled down growth
in the gross domestic product (GDP) from 2006 to 2010.  Since the beginning of 2011, however, both home
construction and home improvement spending have made a positive contribution to
GDP in four out of five quarters.

Another bright spot is the rental market;
the number of renters surged by 5.1 million over the decade of the 2000s, the
largest decade-long increase in the postwar era.  This reflects not only growth in those
populations which are historically prone to rent – the young, minority, and low
income households, but foreclosures have driven others into the rental market.

Still the rental market has not fully
benefited from the large echo-boom generation because the recession has forced
a lot of young people to put off leaving home which usually means a move into
rental housing.  Once the economy
improves the echo-boomers should give the market a significant lift.

The rising demand for rentals has
sparked rent increases in many parts of the country; 38 of the 64 markets
tracked by MPF research had rent increases that outstripped inflation and all
but one of the remainder (Las Vegas) had at least a nominal increase in
2011.  Even in some cities hard hit by
foreclosures and the economy in general (Detroit, Cleveland) rents are rising.

The increase in rents has, in turn,
helped to stabilize the multifamily property market where prices are were
reported up by 10 percent in the fourth quarter of 2011 from one year earlier
and multifamily construction starts more than doubled from its trough to a
225,000 unit annual rate, providing a welcome boost to construction.

Homeownership continues to slide,
dipping to 66.1 percent in 2011 from 66.8 percent a year earlier and 69 percent
at its peak in 2004, but it is still higher than in the period from 1980 into
the early 1990s.  Rates for older
households continue to climb as the population ages, but the homeownership rate
for younger households will probably continue to decline over the next few

The number of new homes added to the
housing stock in the 2002-2011 period was lower than in any other ten year span
since the early 1970s so it is hard to argue that overbuilding is dragging down
the market.  The excess housing supply is
largely a reflection of the slowdown in housing growth which resulted from the
decline in the rate at which younger people are forming households as noted above
and also because of a sharp drop in immigration.  But over the longer run, the growth and aging
of the current population should support the addition of about 1.0 million new
households per year for the next ten years. 
Immigration remains an unknown in this calculation, but even assuming
net inflows are half what was predicted by the U.S. Census in 2008, household
growth should average 1.18 million per year in 2010-2020.

The recession took a toll on household
income but did little to lessen the burden of housing costs.  Between 2007 and 2010 the number of
households paying more than half of their income for housing rose by 2.3
million to 20.2 million.  While renters
accounted for the vast majority of the increase, the number of severely
cost-burdened owners also rose more than 350,000 as many households took on
expensive mortgages they were later unable to refinance.  In addition, this recent increase is on top
of an increase in cost burdened households of 4.1 million in 2001-2007.

These cost burdened families face a big challenge.  Among families with children in the bottom
expenditure quartile of income and with the most severe housing cost burden,
only about three-fifths of the amount is spent on food, half as much on
clothes, and two-fifth on healthcare as is spent by families living in
affordable housing.

The Joint Center said there are few
prospects for a meaningful reduction in this cost burden
.  Funding for the federal Housing Choice Voucher
Program has increased only modestly since the recession and the only
significant growth in subsidized rental housing is through the Low Income
Housing Tax Credit which continues to add about 100,000 affordable units each
year.  If the current calls for reducing
domestic spending are realized “the nation would move even further away from
its longstanding goal of ensuring decent, affordable housing for all

On the road ahead, with moderate gains
in multifamily and single family construction and improving sales of existing
homes, housing should be a stronger contributor to economic growth than it has been
in years
.  The rental market is back on
track, but the owner occupied market still faces the same pressures it has for
years; distressed properties which hold down prices and owners who are unable
to sell because they are underwater. 

Actions such as changes in the Home
Affordable Modification Program, the servicing settlement, and more rapid
disposition of properties where homeownership cannot be maintained are helping
the market.  However, the greatest
potential for recovery of the for-sale market is its historic
affordability.  The dive in home prices
and record low mortgages rates make homebuying more attractive than it has been
in years but the limited availability of financing that meets the needs of many
borrowers, strict underwriting guidelines, and rising fees are inhibiting
sales. “With key mortgage lending regulations still undefined, it remains to be
seen to what extent and under what terms lenders will make credit available to
lower income and lower-wealth borrowers.”

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