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May 23, 2018

Housing Trends
Zonda

May Zonda Newsfeed: New Home Sales Increase Across Different Measures YOY

MAY ZONDA NEWSFEED

April new home sales figures posted a 12% gain compared to last year, and we had two notable observations. First, there’s been a shift to higher priced sales; 32% of all new homes sold for $400,000+ in April 2017 compared to 36% in April this year. For the average American, purchasing a home at that price point is far out of reach given the US median household income is $59,000. Second, the upward trend tracks with contract sales data in Zonda that captures mainly production housing. Our data shows a 4% increase in sales on the year (LTM), led by top California metros, Las Vegas, Phoenix, Miami, and Orlando. These markets are driving up the overall sales rate as prices approach the previous peak and consumers reach a level of financial stability.

– Ali Wolf, Director of Economic Research

SUSTAINED BUILDER OPTIMISM

The NAHB Housing Market Index is 1.5% higher year-over-year and 21% above May 2016 levels.

  • When the index hits above 50, it indicates that builders have a positive outlook on home sales. The index has recorded above the benchmark value for nearly four years
  • Despite the rising costs of supplies and shortage of labor making it difficult for builders to produce competitively priced homes, strong job growth and favorable mortgage rates support consumer demand and builder confidence

SUPPLY/DEMAND FUNDAMENTALS FAR FROM EQUILIBRIUM

Nonfarm payrolls have increased for over seven consecutive years, the longest stretch in history. 

  • The employment-to-permit ratio (E/P) looks at how well supply is keeping up with demand. A balanced ratio is 1.2, meaning for every 1.2 jobs added, there’s 1 permit issued. The E/P ratio of 1.69 is down 7% year-over-year, but remains 40% higher than equilibrium levels
  • While total building permits reached 1.352M in April, there is plenty of room for increases in development
  • The ratio becomes less reliable as we hit full employment because job growth will slow, suggesting the market is more balanced than in reality

HOMEOWNERSHIP HOLDS STEADY

The homeownership rate flattened quarter-over-quarter at 64.2% and is below the historical average of 65.4%.

  • The homeownership rate is 5% below the 2004 peak
  • As expected, homeownership in the Midwest outpaced the national average at 67.9%. Affordability constraints continue to put downward pressure on the West’s rate, currently at 59.7%
  • The decline in homeownership is not demand related. There’s ample interest in becoming homeowners, but barriers to entry, especially for first-time buyers, are high. Starter home inventory fell 14.2% year-over-year

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Ali Wolf

Director, Economic Research

Ali Wolf

Director, Economic Research


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