The Census Bureau is out with monthly construction numbers for April showing an uptick in construction activity offset by slightly lower permitting. While there are several other metrics in this report, building permits and housing starts (which measures when construction actually begins) are the two that are most widely followed. As seen in the chart below, housing starts tend to be more volatile, month to month. In the present case, however, they were only slightly higher than the previous month at an annual pace of 1.361 million vs 1.339 million. Starts would have fallen had it not been for the multifamily sector. Single unit starts dropped from 947k to 927k while multifamily starts surged from 378k to 420k, the highest since late 2023. Over the past few years, there are several housing and mortgage market metrics that paint a fairly gloomy picture. Applications and builder confidence come to mind. While the construction data is not as strong as it was a few years ago, it remains one of the better examples of strength in the sector as it remains higher than most of the pre-pandemic time frame.
The National Association of Homebuilders (NAHB) and Wells Fargo released the monthly Housing Market Index (HMI) this week, showing builder confidence falling to the lowest levels since 2023. This is about as low as the index has been since the housing crisis more than a decade ago. While persistently high interest rates remain a top concern for the housing market, a growing number of builders cited difficulty pricing new homes in light of the rapidly changing outlook for material costs due to tariffs. With that in mind, it's important to note that 90% of this month's responses came in before the US/China trade announcement. Not only did that announcement drastically reduce tariffs for 90 days, it also offered a proof of concept that will likely see the outlook improve in the next survey due to lower material costs and a more upbeat consumer. Additional details are available at https://www.nahb.org/news-and-economics/housing-economics/indices/housing-market-index.
Home purchase demand improved improved last week according to the MBA mortgage application survey. The improvement over the previous week was fairly modest, but the index was already the 4th highest reading of the past 2 years. Now it's the 5th highest and the latest update takes its place, moving within striking distance of longer term highs. It's no secret that most measures of mortgage and housing activity have been operating in a low, narrow range compared to where they were a few years ago. The mortgage rate spike of 2022 gets most of the credit for that, and a longer term chart of refinance demand helps contextualize shorter term trends. All that to say, we have to zoom in if we hope to see changes in application demand. In so doing, we find refinance activity still elevated relative to most of the past few years, but not in the 'boomlet' territory seen last Fall. The absence of significant week-over-week movement in refi demand makes good sense in light of minimally-changed mortgage rates. MBA logged a 0.02% increase in the average 30yr fixed rate from the previous week which aligns fairly well with our daily rate tracking. Since then, rates moved a bit higher through mid-week, but have dropped heading into the weekend. The net effect shouldn't be massive for application demand. Here's the MBA's surveyed changes in various rates and points (difference from last week in parentheses): 30yr Fixed: 6.86% (+0.02) Points: 0.68 (no change) Jumbo 30yr: 6.85% (−0.01) Points: 0.49 (+0.03) FHA: 6.59% (+0.03) Points: 0.89 (+0.02) 15yr Fixed: 6.12% (−0.05) Points: 0.59 (−0.06) 5/1 ARM: 6.09% (+0.12) Points: 0.74 (+0.43)
Both of the major purveyors of home price indices have been in agreement for the better part of a year that the average home is appreciating between 4 and 5 percent per year. The FHFA House Price Index showed only a 0.1% uptick in February while the Case Shiller Home Price Index rose 0.7%. In annual terms, Case Shiller was at 4.5% and FHFA fell from 5.0 to 3.9%. In the bigger picture, these changes don't amount to much. Things get a bit more interesting when we examine the monthly movement. First off, and more by way of a general backdrop, the past few years have seen a bigger gap between highs and lows compared to the norms established between 2014 and 2019. The more interesting month-over-month development is highlighted in the next chart. Simply put, FHFA's index dropped to 0.1 from 0.3. That's not a big deal in and of itself, but the plot thickens when we consider the following 2 facts: These indices are not seasonally adjusted (i.e. they show typical seasonal price patterns when viewed in a month-over-month interval) February (the most recent month available, released this week) almost always coincides with FHFA's index topping out for the year and Case Shiller's index in the midst of its normal springtime upswing. True to form, Case Shiller (the orange line) is seeing the normal upswing, even if at a more muted pace. But FHFA fell near the lowest levels of the past 12 months instead of peaking.
Mortgage rates were in the process of falling by the end of last week, but they made additional headway during the first half of the present week. That means this week's mortgage application survey from the Mortgage Bankers Association (MBA) may be reflecting hesitation due to the elevated rates at the beginning of last week. The chart below shows the day to day rate movement (MND) during the survey week as well as the weekly survey rate (MBA). Mortgage rates are not perfectly correlated with mortgage application activity--especially for purchases. But the fairly quick rate spike in the early part of the week jives with the modest drops in both the refi and purchase indices from MBA. Both sets of application data are still higher than their average level from the past 2 years. MBA adds that demand for purchase applications "continues to be subdued by broader economic uncertainty and signs of labor market weakness," according to Joel Kan, MBA’s Vice President and Deputy Chief Economist.
As is the case for the monthly data on New Home Sales from the Census Bureau, the National Association of Realtors (NAR) Existing Home Sales report does not make for exciting news these days. It's not that the news is tragic or alarming either. It just sort of... is. Whereas New Home Sales have been able to hold sideways near their pre-covid highs, Existing Sales continue to languish near the lowest levels in decades. Apart from the great financial crisis in 2008-2010, you'd have to go back to 1995 to see lower levels. "Home buying and selling remained sluggish in March due to the affordability challenges associated with high mortgage rates," said NAR Chief Economist Lawrence Yun. "Residential housing mobility, currently at historical lows, signals the troublesome possibility of less economic mobility for society."
The Census Bureau released March New Home Sales data this week, and it was near the best levels seen since early 2022. Before you get too excited about that, a caveat is in order. Simply put, when it comes to housing market data, nothing has been more uneventful than new home sales over the past few years. The chart tells the story. It's tough to make an entire news article interesting when it comes to this data, so we won't waste your time. Instead, here are some bullet-pointed highlights that showcase some of the departures from the status quo (these are common, and they tend to come out in the wash in the longer term): Sales fell 22.2% in the Northeast region, but had risen just as sharply in the previous month. Sales jumped nicely in the South for the 2nd straight month (13.6% this time) and are now at their highest levels since April 2021. The South accounts for 483k of the 724k national total.
The National Association of Homebuilders (NAHB) and Wells Fargo publish the Housing Market Index (HMI) each month, otherwise known simply as "builder confidence." This month's index came out at the 2nd lowest level since late 2023. While that might sound dramatic, it's very much in line with the prevailing trend for this report. And while the chart above may make it seem like confidence is in the gutter, it's really only about halfway in the gutter in the bigger picture. There were some interesting details inside the report. Specifically, 60% of builders said that tariffs were already impacting prices or leading to announcement of impending price increases from some suppliers. The NAHB notes that tariff-related price increases currently average 6.3%, or $10,900 on an average home.
One would think that the pace of new residential construction largely mirrors the pace of filings for building permits. And while that is generally true in the bigger picture, there can be noticeable discrepancies month to month. This week's data from the Census Bureau is the latest example. Building permits were slightly higher at 1.482 million units (annual pace) versus 1.459 million previously. Contrast that to housing starts (the term for the ground-breaking phase of home construction) which fell to 1.342 million from 1.494 million previously. This excess volatility in housing starts can be seen in the following chart with the blue line whipping higher and lower many times over the past few years while the orange line remains relatively more steady. There was a heavy regional skew to the housing starts numbers with two regions moving higher and two moving lower as follows: Northeast +2k starts (+1.4%) Midwest +96k starts (+76.2%) South -139k starts (-17.1%) West -129k starts (-30.9%) Note: the count of housing starts account for a different percent change depending on the overall activity level in the region. For example, starts declined more in the South than in the West, but the percent change was much lower because the South had a total level of 524k versus only 289k in the West. If you're thinking that all of the above sounds pretty boring and/or you're wondering why it even matters, you're right. Home construction data is pretty boring--just a slow, steady grind until something big starts happening.
