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7/27/2019 [email protected] - US Housing Data

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Word for the day: US Housing data

Housing is one of the most important sectors in the US economy. Residential investment – buildingnew homes, remodeling houses, and the fees associated with selling them – accounts for around 5%of GDP. More than 2.5 million people are employed in the housing sector in the US, or around 1.7%of the labor force. Thus the health of the housing sector strongly influences the health of the economyas a whole.

Moreover, houses are the major financial asset that most people own; 65% of Americans own theirown home while only 52% own any stocks, and even at that, holdings of stocks are overwhelminglyconcentrated in a relatively small number of wealthy people. Thus changes in house prices greatlyaffect the emotions of consumers: rising house prices make people feel richer and therebyencourage them to spend (the wealth effect ), while falling house prices can make people feel poor

(or even actually become poorer, if the value of their house falls below what they paid for it).

Because it is such a large part of the economy and so important to consumer sentiment, housingactivity usually leads the business cycle. It is therefore is a key indicator to watch to judge where theeconomy is headed.

Several factors can affect the housing market, such as consumer confidence, mortgage rates, theavailability of mortgages and of course economic growth. For example, with strong economic growthand rising incomes, people can afford to spend more on houses; therefore demand for property rises.

Below are some of the most closely watched indicators that economists and analysts use to measureactivity in the housing market in US.

Building permits

Builders planning to construct new homes most of thetime have to file for a permit before they startconstruction. Building permits therefore lead housingstarts by one to three months (As the graph shows, theone-month lead is pretty close). By tracking theissuance of permits, one can get an idea of futureconstruction activity. The US Commerce Department’sCensus Bureau releases data on building permitsmonthly. Because the housing sector tends to lead therest of the economy and permits tends to lead housing,the series on permits is one of the ten components ofThe Conference Board’s index of leading indicators.



Housing starts

Housing starts show the number of new houses or apartment buildings that builders start building eachmonth. The Census Bureau releases the data monthly along with the building permits. A drop-off inhome construction is a sign that the broader economy is likely to slow. On the other hand, a rebound inhousing starts often sets the stage for a pickup in overall housing activity.

Home Sales

There are three series on home sales: new home sales, existing home sales and pending home sales.

New home sales: Data on the sale of new homes is issued every month by the Census Bureau. Thereport includes price statistics as well as the number of homes sold. The houses can be at any stageof construction, from not yet started to under construction to finished. The series is quite volatile andsubject to revision back several months, so that several months of data are usually needed to establisha change in trend. Sales are registered on the signing of a contract or acceptance of a deposit. If thecontract is subsequently cancelled, the figure is not revised (unlike existing home sales below). As aresult the figure overstates sales when the market is bad and people are cancelling more homes thanusual. The data includes the supply of completed new single-family homes being offered for sale, whichcan also be expressed in relation to the pace of annual sales – the inventory/sales ratio. Changes inthis ratio often lead an opposite move in housing starts as builders adjust the pace of building inresponse to rising or falling inventories.

Existing Home Sales: The existing home sales report isreleased monthly by the US National Association ofRealtors (NAR) and measures monthly sales of previouslyowned single family homes. It also reports the averageand median prices of the homes sold, plus the inventoryof unsold homes (expressed in terms of months ’ supply).

The report covers in detail the whole US nation andseparates them by region (West, South, Midwest andNortheast). In contrast to new home sales, existinghomes are considered sold when the contract closes,which can be one to three months after a contract issigned. Thus existing home sales lag shifts in housing demand by a few months.

There are far more existing homes sold than new homes: some 5.5mn annually vs 420,00 recently(see graph). Although the sale of existing homes has only a small impact on GDP, unlike theconstruction of new homes, it may be an indicator of the demand for household goods as people oftenbuy a new refrigerator or other goods when moving into a new house. The sale of an existing homealso can provide a windfall to the seller, who may choose to spend the money. The house price datacan indicate how changes in the housing market are affecting household wealth. NAR uses the price

data to calculate an affordability index for home purchase, which takes into account incomes, houseprices and mortgage rates. At 100, it indicates that the household with the median income can affordto purchase the median-priced home. Above 100 indicates greater affordability.



Pending Home Sales: The pending home sales is alsoreleased by the US National Association of Realtors

(NAR). The release shows the number of existing homesales in which a contract is signed but the sale has notyet been settled. As noted above, existing home salesare reported as of the closing of the transaction, whichtakes place anywhere from one to three months after thecontract is signed. Over 80% of all pending home salessettle within two months. Unlike the sales data, whichare reported in terms of units sold, pending home salesare reported as an index (2001 = 100). Contract activitywas relatively strong in 2001.

MBA mortgage applications

The Mortgage Bankers Association (MBA) releases everyweek its mortgage appl icat ions report , which shows thenumber of people applying for a mortgage or to refinancean existing mortgage. The MBA estimates that the surveycaptures more than 75% of all mortgage applications.Since most people take out a mortgage to buy a house,mortgage applications are a leading indicator of thehousing market, although the data can be affected bychanges in the industry or in loan standards. In theory, thedata should also be a leading indicator of consumerspending. This index is quite volatile (see graph) and hasless impact on the market than other housing indicators.

NAHB housing market index

The National Association Home Builders (NAHB) is anindustry group for the housing construction industry. Itcompiles the NAHB housin g market index (HMI), amonthly survey to assess the current market for newsingle-family home sales along with builder expectationsof future trends. NAHB surveys its 140,000 plusmembers to rate current market conditions and salesexpectations for the next six months as ‘good’, ‘fair’ or‘poor’. The result is presented as a diffusion indexranging between 0 and 100. A reading above 50indicates that the market conditions and expectations areimproving. The NAHB index is a useful leading index ofhousing activity, especially as it is released relatively early in the month and revisions are usually notvery large.



S&P/Case-Shiller home price indices

The S&P/Case-Shiller home price indices are a leading tool to measure the change in the price ofsingle-family homes throughout the US. There are three composite indices: A national home priceindex, which is a composite of single-family home price indices for the nine US Census divisions; a10-city composite index, which measures the change in value of residential real estate in 10metropolitan areas; and a 20-city composite index, which measures the change in value of residentialreal estate in 20 metropolitan areas. Individual indices are available for all twenty metro areas as well.The 10- and 20-city indices are compiled monthly, while the national index is compiled quarterly.

The S&P/CS indices are calculated from data on repeat sales of single-family homes (that is, homesthat have been sold at least twice before).

FHFA US house price index

The Federal Housing Finance Agency (FHFA) house price index (HPI) is also a weighted, repeat-sales index for single-family homes, similar to the S&P/CS indices. Because of differences betweenthe two methodologies, it’s not possible to say which one is “better ” than the other.

The FHFA HPI has the advantage of broader geographic coverage:it is available on a monthly basis for the nine census divisions andthe US as a whole, while a comprehensive report covering all 50states and all of the country’s metropolitan statistical areas ispublished quarterly, whereas the S&P/CS indices do not have datafrom 13 states. On the other hand, the FHFA index is confined tohomes financed with conforming mortgages, which are those thatboth meet the underwriting guidelines of the US government-ownedmortgage lending institutions Fannie Mae or Freddie Mac and donot exceed the conforming loan limit of $417,000. The S&P/CS

indices include houses in all price ranges. Moreover, they are value-weighted, meaning that price trends for more expensive homes have a greater influence on theindices, while the FHFA weights price trends equally for all properties. There are also differences inthe sources for price data as well as some other differences in how they are computed. Hence the twoseries can and do differ. As the graph shows, the S&P/Case Shiller index, with its wider range ofprices and narrower geographic base concentrated in major cities, tends to be more volatile than theFHFA index.

Note: the FHFA used to be called the Office of Federal Housing Enterprise Oversight (OFHEO) andthe index was similarly known back then.



As you can see, the NAHB index is the most up-to-date indicator for the sector, while the two priceindices usually lag the rest of the housing data by one month.

Disclaimer:

Date Indicator For Time

15-Aug NAHB Housing Market Index Aug 17:00

16-Aug Housing Starts Jul 15:30

16-Aug Building Permits Jul 15:30

21-Aug Existing Home Sales Jul 17:00

22-Aug FHFA House Price Index Jun 16:00

23-Aug New Home Sales Jul 17:00

27-Aug S&P/Case Shiller indices Jun 16:00

28-Aug Pending Home Sales Jul 17:00

Note: the order of the releases can and does vary each month

US Housing-related indicator schedule in Aug 2013



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