Signs of Recovery Sprout

After what seems to be a long spate of negative economic news, signs of a recovery have begun to emerge on several fronts. One is new residential construction, where the rebound is relatively negligible relative to the losses of the preceding two months, but still ticked upward.

Total housing starts rose 4.3% in May, to an annual rate of 974,000 units. The last two months’ rate of new housing construction is a far distance, however, from the lofty levels at the start of the year. This is evidenced in the chart below, where the average housing starts over the three months from December through  February were on an annual pace of 1.59 million units, compared to the April-to-May period, which averaged just 954,000 new homes (annualized rate) — 40% lower than the prior period.

Further, the small gain in total housing starts is the result of multifamily construction increasing by 15% in May, to just under an annual rate of 300,000 units. Construction of single-family homes was virtually flat in May, at a rate of 675,000 units.

Despite the modest gain in new housing starts, builders remain confident that demand for new housing will improve. Permits for the construction of new homes rose in May by 14%, to an annual rate of 1.22 million units, much higher than the 4.3% increase in housing starts.

Is there a disconnect between builders’ expectations and prospective homeowners’ ability or intent to purchase a house? As with many things, only time will tell.

Regionally, only two of the four regions — the Northeast and the West — saw greater new residential construction in May than in April.

Housing starts in the West jumped by a phenomenal 70%, to an annual rate of 390,000 houses. The Northeast also increased, but by a more modest 12% to an annual rate of 53,000 new homes.

Housing starts in the Midwest fell by 1.5% in May, to a rate of 133,000 units. But the South, the largest region by volume of new housing construction, fell in May by 16% to 479,000 homes. New housing construction in these two regions has fallen in each of the last three months.

The table below displays the latest new housing statistics.

Retail Sales Bounce Back

Fairly predictably, once stores started reopening and consumers were allowed out of their homes, shoppers shopped. This resulted in a retail sales spike in May, overall and across all categories. Total retail sales increased by 17.7% to $486 billion for the month. The latest increase compensates for the sharp decline in April, when sales fell 14.7%, and the increase brings sales back to the same level they had in March.

Despite last month’s increase in total sales, the volume during the pandemic shutdown is running 11% lower than the preceding 12 months.

All categories saw sales increase last month, even Health stores, which recorded  a modest increase of 0.4%. Health-store sales are also 10% lower than the 12 months preceding the pandemic shutdown in mid-March.

However, despite May’s jump, average monthly sales for most categories over the three-month period from March through May are significantly lower than the monthly average registered over the previous 12 months.

At the same time, sales for many types of stores are running significantly below the same month of last year. This is especially the case for sales at Restaurants & Bars, with May sales running 39% below May 2019. Electronic & Appliance stores posted May sales just under 30% below last year, Gas Stations are 31% behind May 2019 and Department Stores posted sales that are 26% lower.

Unemployment Claims Still Alarmingly High

For the 13th consecutive week, the number of persons filing for unemployment benefits remained astonishingly high. The week of June 13, a total of 1.51 million people filed, just 58,000 fewer than the previous week. This brings the total who have filed since mid-March, when the shutdown started in earnest, to 45.7 million.

This amounts to approximately one-quarter of the total number of people employed before the shutdown began, when the employment total exceeded 160 million jobs.

But not all people who file for benefits are able to collect them. Many do not qualify for a variety of reasons. The most common is that they have not been employed for at least a year prior to filing. Although the rules vary by state, most states require a year of previous employment to qualify.

Mortgage Rates Inch Down

Following the announcement by Federal Reserve Chair Jerome Powell that the central bank will not move to increase interest rates for the foreseeable future, at least through 2023, the financial markets reacted favorably.

Mortgage rates slipped further, with the 30-year, fixed mortgage rate falling by 8 basis points to 3.13%.

The number of mortgage applications for home purchases as well as refinancing existing loans each rose. Total applications jumped by 8% the week ending June 20. While the volume of both types of loans increased, applications for refinancing rose faster.

These actions by consumers are contributing to improve their personal finances. On top of the forced savings imposed by the shutdown which, as reported last week, resulted in consumers increasing their savings to one-third of their income, many homeowners are adding cash to their finances via refinancing.

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 if you would like to see further detail.