Housing Markets Crash as New-Home Starts Plunge

New residential construction took another dive in April, with total housing starts plummeting by 30% to an annual rate of 891,000 houses. April’s drastic drop is not surprising, given the nation’s forced economic paralysis, and follows a 19% decline in the previous month.

From a promising start of the year, new residential construction was running at an annual rate just under 1.6 million units in the three-month period from December through February. In  April, housing starts were 44% lower than that strong beginning.

Single-family construction last month was 25% below the prior month, down to an annual rate of 650,000 units. Construction of new multifamily units, which tends to be more volatile from month to month, dropped 41% in April. Compared to the December-though-February period when new housing was booming, single-family starts in April were 37% lower, and multifamily starts registered a yet much larger decline of 58%.

A similar picture emerges regionally, although the magnitude of the change is not the same across the four regions. The Northeast and the West individually exceeded the national decline of 30%, by more than 10 percentage points. Total housing starts in the Northeast were just 44,000 units (annualized rate), for a 44% drop from the prior month, and in the West they plunged 43%, amounting to a rate of only 184,000 units.

The South generated an annualized 532,000 starts, still down from March by 26%, while the Midwest had the smallest decline, falling by 15% to a 131,000 unit annual rate.

Existing Home Sales Fall, but Less Than Expected

Given that the majority of Americans were forced to stay at home throughout April, it is still surprising that sales of existing homes did not fall further in the month. There is ample evidence, however, that real estate professionals quickly developed new strategies to continue selling homes in the pandemic environment.

Many home sellers are obviously concerned about strangers walking through their home, so they are demanding prospective buyers to take precautions such as wearing masks, using hand sanitizers, etc. But realtors are also using virtual open houses, remote closing, etc., that facilitate the viewing and home sale.

Nonetheless, sales of existing homes fell 17.8% in April to an annual rate of 4.33 million units. Compared to the same month last year, sales in April were also 17.2% lower. April sales were about a million units fewer than the monthly pace maintained over the last year, which was 5.4 million units, annually, on average.

The black line in the chart above displays the relative stability in the monthly sales pace throughout most of last year, although it displays a modest upward drift. Also, it is apparent that sales in the first three months of this year (the blue line) were above last year’s levels, only to crash in April.

Regional performance is similar. Existing homes sales declined in all four regions, ranging from a 12% drop in the Northeast to a high of 25% in the West.

Unemployment Claims Still Depressingly High

The number of people filing for unemployment benefits last week dropped by nearly a quarter-million from the preceding week. Nonetheless, the total remains a disturbingly high 2.44 million This figure brings the total who have filed since the shutdown began in most states, in mid-March, to 38.6 million.

Furthermore, as of last week, the Bureau of Labor Statistics tabulated 25.1 million “continuing claims.” This the number of people who have filed and are already receiving weekly unemployment benefits, and a number that will continue to increase, since many who filed have yet to receive benefits.

Mortgage Rates Edge Down

Although the 30-year fixed rate trickled down by 4 basis points to 3.24% from 3.28%, they have remained within a narrow range since early April, hovering between 3.23% and 3.33%, after the Federal Reserve Bank began to take a much more aggressive position to help sustain the U.S. economy.

Falling mortgage rates in April were not sufficient to compensate for the imposed shutdown in April, however. The easing of restrictions in many states this month is helping boost mortgage applications. According to the Mortgage Bankers Association, applications for home purchases have increased for the last five weeks, even though activity for refinancing fell to its lowest level in a month.

Nonetheless, the association expects to see increased refinancing applications as homeowners seek of ways to alleviate pressure on their home budgets.

Manuel Gutierrez, Consulting Economist to NKBA

Explanation of NKBA’s Economic Indicators Dashboard

The dashboard displays the latest value of each economic indicator with a colored triangle that highlights visually the recent trend for each of the drivers. “Green” is a positive signal, indicating that the latest value is improving; “Yellow,” as it’s commonly understood, denotes caution because the variable may be changing direction; “Red” indicates that the variable in question is declining, both in its current value and in relation to the recent past.

Note that all the data, except for “mortgage rate” and “appliance-store sales” are seasonally adjusted and are represented at annual rates.

Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.

Single-Family Starts.  This is the number of single-family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.

Existing-Home Sales. These data are issued monthly by the National Association of Realtors and capture the number of existing homes that were sold in the previous month.

High-End Home Sales. This series are sales of new homes priced at $500,000 and higher. The data are released quarterly by the U.S. Department of Commerce and are not seasonally adjusted. Thus, a valid comparison is made to the same quarter of prior year.

Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.

Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.

Building-Materials Sales. These data, released monthly by the Department of Commerce, capture total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also includes sales to projects other than residential houses.

Appliance-Store Sales. This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as home centers.

We hope you find this dashboard useful as a general guide to the state of our industry. Please contact us at Feedback@nkba.org if you would like to see further detail.