As frigid winter weather finally began to subside and the economy showed improvement, all eyes were on April to see how residential construction would perform under the better conditions. Housing market indicators and reports are released constantly from different government agencies and industry groups. To help you consolidate this never-ending stream of facts and figures, we chose six of the most significant residential construction reports to come out of April, and asked: What do these really mean for the future of the housing market?
Home prices continue gradual rise, from CoreLogic Home Price Index
One of the first reports announced in April was the Home Price Index from CoreLogic, released on April 7. The report showed prices continuing their slow and steady rise in February—the most recent price data released—and increasing by 5.6%, compared with February of the year before. Between January and February 2015, home prices rose by 1.1%. At the same time, prices of low-end home prices rose 9.3% year-over-year, compared with a price hike of 4.8% for high-end homes.
Zillow’s update to the home price numbers at the end of the month echoed the trend from CoreLogic’s report. The site’s first quarter Home Value Index showed values increased 3.9% year-over-year—a slight rise that falls in line with the slow and steady pattern set at the beginning of April.
The lack of affordable housing hasn’t been a secret over the past few months. As supply becomes scarcer, prices will naturally rise for the homes available. But the continuously rising prices have the negative effect of keeping first-time buyers out of the market, as they are unable to afford the more expensive price tags.
The CoreLogic Index did not ring in the month with positive news as many had hoped. In fact, it had the opposite effect of emphasizing the inventory problem, which doesn’t seem to be going anywhere. However, the fact that price increases are slow was a positive takeaway for buyers.
Number of foreclosures falls, from CoreLogic National Foreclosure Report
Just one week after their less-than-encouraging home price report, CoreLogic released the National Foreclosure Report on April 14. But this time, it brought smiles to the faces of housing experts. February’s inventory of foreclosed properties was down 27.3% from the year before, and the amount of “seriously” delinquent mortgages fell 19.3%. Since the peak of foreclosures in 2010, the number of completed foreclosures in February was down 67%.
Unlike CoreLogic’s previous report, the foreclosure numbers offered a positive sign for the housing market’s recovery. As fewer homeowners default on their mortgages, fewer of their homes will likely face future foreclosure. Local markets can also benefit from a fall in foreclosures, as banks often underprice foreclosed properties to sell them faster, hurting the ability of nearby sellers to list their homes for fair market price.
The foreclosure report added to the other positive economic factors of a stronger job market and low interest rates, and temporarily lifted up the fallen spirits of many industry hopefuls.
Homebuilders express greater optimism, from National Association of Home Builders/Wells Fargo Housing Market Index
That positive momentum continued with the National Association of Home Builders/Wells Fargo Housing Market Index, released on April 15. In the survey, homebuilders reported higher confidence during April than during any month since January. Builder sentiment on the index reached a level of 56 in April—up from 53 the month before. For background, an index score higher than 50 means that more home builders are optimistic than pessimistic about building prospects for the coming months.
The NAHB attributed the optimistic attitude once again to strong job creation and lower interest rates. Builders’ predictions offer a human alternative to the cold numbers from other reports. If anyone would know how residential construction may perform in the future, it would be the builders deep in the fray.
Housing starts disappoint, from the U.S. Census Bureau and the Department of Housing and Urban Development
Data released by the U.S. Census Bureau and the Department of Housing and Urban Development on April 16 showed that housing starts in March came in way below expectations. Starts for the month grew by only 2% after seeing a significant drop the month before. Even more surprising: The number of residential groundbreakings was down 2.5% from March 2014.
Economists were shocked by the government’s report, as they had predicted starts to see a greater increase after interest rates reached near record lows, weather conditions improved, and the job market strengthened.
However, a number of factors could have contributed to the report. Cities with major oil industries have seen a serious drop-off in building as demand for oil subsides, and the Western U.S.’s drought has reportedly stifled home building in the area.
The low number of housing starts could add on to the already existing problem of a lack of inventory.
Existing home sales rise, from National Association of Realtors report
April 22 was a happy day for the housing market, as the NAR reported sales of existing homes rose by 6.1% in March. Sales surged to their highest level in 18 months—a sign of hope for the spring selling season.
Experts predicted the surge in existing home sales could have been the result of the seemingly never-ending rise in apartment rents. As the rate of home price increases slows down, as earlier reports noted, more apartment dwellers are discovering the cost of owning is often cheaper than the cost of renting.
The NAR’s report provided concrete, positive numbers of home sales for the month. Sadly, though, a new report quickly came out to rain on the parade of that sense of optimism.
New home sales drop, from U.S. HUD Department and U.S. Census report
A day after the NAR released its existing home sales report, the U.S. Census Bureau and the U.S. Department of Housing and Urban Development announced on April 23 that new home sales fell 11.4% in March. The decrease followed the strongest monthly performance for new home sales in seven years in February and represented a four-month low for the statistic.
Industry experts and economists blamed the harsh winter for delaying construction and new sales during March. Many were quick to label the start of the spring selling season as a dud, but when combined with the NAR report the day before, the U.S. government’s numbers offered a mixed bag of residential predictions.
Report takeaways
As April comes to a close, experts seem just as uncertain about residential construction’s future as they did at the month’s start. Many agree on a handful of trends, including a slow rise in home prices, a lack of affordable inventory, winter’s harsh negative effect on the industry, surging rent prices making home purchases look more appealing, and low interest rates and a strengthening job market creating a heightened sense of optimism.
Now that we are in the heart of the selling season, weather problems in most regions of the country can no longer be an excuse for a poor-performing market—except for in areas hurt by recent droughts. It will be interesting to see if the trends from the past month continue, what new ones emerge, and whether residential construction will soon have a more clearly defined trajectory.
