After dipping during the “pause” in September, new home sales rebounded in October, according to the National Association of Home Builders’ (NAHB’s) “Eye on the Economy” blog. Some slowdown in housing was expected due to declines in consumer confidence and the uncertainty produced by the partial government shutdown. However, the October data add more evidence that the recovery for housing will continue into 2014.
Rising 25% from the September pace, the annualized rate for October came in at 444,000, reaching a level established earlier in the year. Months' supply totaled 4.9, the lowest inventory measure since the second quarter. In fact, for October, the total inventory of completed, ready-to-occupy newly built homes remained low at only 42,000 nationwide.
With respect to new home financing, Census data show that the cash share of new home sales totaled 7.37% during the third quarter, near the recent high of 7.89% of the third quarter of 2011. FHA-insured mortgages came in at 17% of the market for the third quarter. Interest rates remain low by historic standards. Data from the Federal Housing Finance Agency indicate that the average contract interest rate for October for newly built homes was 4.32%.
Looking at individual markets, the NAHB/First American Leading Markets Index rose slightly to a value of 0.86 in December, up from 0.85 in November. This index measures progress for employment, home prices, and home building based on normal market conditions. Thus, the 0.86 measure indicates that nationwide, housing markets are operating at 86% of normal conditions. In December, 54 metros were at or above a value of one, meaning those markets had returned to or were above their last normal levels of activity. These markets were dominated by energy and agriculture states and smaller markets that did not see rapid declines in production and prices in recent years.
In other positive news for home builders, lending conditions for acquisition, development and construction (AD&C) loans continue to improve, although a considerable lending gap between demand for AD&C and current loans persists. NAHB survey data indicate that for the third quarter, only 9% of those surveyed reported that lending conditions deteriorated, with 28% noting improving conditions. And FDIC data show that the stock of outstanding AD&C loans grew nearly 5% during the second and third quarters of the year.
Overall, total private residential construction spending was up 17.8% from a year ago, a useful measure of the progress the housing recovery has made recently. Since market lows in June 2009, single-family construction spending is up almost 87%, multifamily 164%, and remodeling-related improvement spending 17%. Over the course of 2013, single-family spending is up 14%, multifamily 22%, and remodeling 3%.