KEY MARKET INDICATORS as of Sep 26, 2017
August Housing Starts, Existing Home Sales, FOMC Decision
Total housing starts showed little change in August at a seasonally adjusted annual rate of 1.18 million units, down by less than 1% from the July pace. However, the rotation from apartment to single-family housing continued with single-family housing starts up 1.6% and apartment housing down 5.8%. For the first 8 months, multi-family housing starts, which consist of mostly apartment units, are down by 10% y/y. In contrast, single-family housing starts are up 9%. This is a reversal of the trend from the last few years, when multi-family housing starts generated stronger growth due to strong demand for rental housing. Rental market is beginning to adjust as rental growth has slowed and rental vacancy rate is beginning to increase. In addition, housing demand is beginning to shift from rent to own, which means stronger demand for single-family housing, resulting in lower vacancy rate among single-family homes for sale. This divergence between single-family and multi-family construction can be seen across all census regions. Regionally, the surprise this year has been the rise in single-family housing construction in California, driving housing starts 10% higher in the West census region.
Existing home sales decreased 1.7% m/m to a seasonally adjusted annual rate of 5.35 million units in August, marking the fourth month of decline. Compared to 12 months ago, existing home sales were down 0.7% in August. The inventory level declined even more than sales during August, and drove the supply of homes down from 4.3 months to 4.2 months – far below the 6 months of supply that is regarded as normal. Homes were sold quickly after listing. Typical homes stayed on the market for just 30 days in August, vs. 36 days a year ago. For realtors and loan officers, this means that while homebuyers may need more time finding the right home, once they have found the right one, they will act fast to close the sale. The tight housing market condition continued to drive home prices higher, with the median home price up 5.6% from a year ago to $253,500.
The Federal Reserve’s September meeting resulted in no immediate increase in short-term interest rates, but the door is still open for another one later in the year. The Fed also announced its intention to start shrinking its $4.5 trillion bond holdings with $10 billion reduction a month in October, and increasing by $10 billion each quarter to a maximum of $50 billion. Fed’s action on reducing its bond holdings means more supply of bond in the market for investors, and can unintentionally raise mortgage interest rates. A successful implementation would mean minimal disruptions to the mortgage and housing market.
* FHFA Purchase-Only Home Price Index