The housing market held steady as the summer months drew to a close. No major changes were reported in new housing permits, starts, completions or builder confidence. New and existing home sales remained relatively strong despite fears that rising interest rates might curb market momentum.
Housing Starts, Completions & Permits
Housing starts rose less than one percentage point to a seasonally adjusted annual rate of 891,000 units in August. Single-family starts accounted for 628,000 units; multi-family starts accounted for the remaining 252,200. Compared to the 749,000 starts of one year ago, nationwide housing starts are up 19 percent. Still, starts remain a far cry from the 1.5 million annually that experts consider healthy.
Housing completions and housing permits also held relatively steady. Completions increased just slightly from 767,000 in July to 769,000 in August. Preliminary numbers put housing permits at 918,000, hovering in the low 900s.
Builder confidence held steady after four months of steady improvement. According to National Association of Home Builders Chief Economist David Crowe, a rise in mortgage interest rates combined with increasing labor costs, tight credit markets and fewer development-ready lots worked together to stall builder confidence. Nevertheless, a confidence rating above 50 indicates builders consider current conditions good for sales.
New single-family home sales improved from 390,000 to 421,000, though they remain below numbers seen throughout most of the first half of the year. Economists consider annual new home sales of 700,000 indicative of a healthy market.
Following a strong three months of over 5 million in sales, the market for existing home sales reached its highest point yet this year at 5.48 million. Analysts attributed the jump in home sales to buyers who want to lock in low mortgage interest rates that have been on the rise throughout much of the summer.
New and existing home inventory remained tight at 5.0 and 4.9 months, respectively. Both figures remain below the six-month supply considered balanced between supply and demand.
Home prices as recorded by the S&P/Case Shiller Home Price Index rose at very modest rates. From June to July, the 10-city and 20-city composites increased by 1.9 percent and 1.8 percent, respectively. July marked the fourth consecutive month of gains for each of the 20 cities. Between August 2012 and July 2013, home prices rose 12.3 percent in the 10-city composite and 12.4 percent in the 20-city composite.
David M. Blitzer, Chairman of the S&P Dow Jones Indices Index Committee, noted that despite the month-to-month increases, the rates of the gains have declined. “More cities are experiencing slow gains each month than the previous month, suggesting that the rate of increase may have peaked.”
New home prices have fallen each month since the record-setting rises in home prices seen in April. The median price of a new home was $254,600 in August as reported by to the Census Bureau.
Data from the National Association of Realtors also indicated the median price of an existing home fell for the second consecutive month to $212,100. Prices of existing homes had risen steadily since March before reaching their highest levels yet this year in June.
The recent rise in home prices has given way to talk of another bubble, yet according to experts like Robert J. Shiller, this is not yet the case. In the 16 months that ended in July, the 10-city composite of the S&P/Case Shiller Home Price Index showed home prices were up 18.4 percent. Prior to the housing bubble and 2008 financial crisis that followed, home prices increased by 22.7 percent in the 16 months that ended in July 2004.
Cause for concern? Not quite yet. In the short-term, consumers expect home prices will continue to increase. Long-term expectations, however, are fairly reasonable. In addition, buyers purchasing homes as rental properties are on the rise. Demand for rental housing is not likely to sustain high prices.
Mortgage rates experienced a slight but steady decline throughout September. The 4.49% rate for a 30-year fixed mortgage reported during the last full week of September is the lowest rate since June.
While rates above 4% do look high compared to the record-low 3.31% seen in November 2012 and the 3% range of rates available throughout most of May, current interest rates remain low compared to levels seen in the past.
Accordingly, most analysts do not anticipate increases will have a negative impact on the housing recovery. As Shiller noted in his aforementioned piece, interest rates considered low near the height of the2004 housing bubble were just over 6 percent for a 30-year mortgage.
It remains to be seen if potential buyers, discouraged by limited supply and rising interest rates over the summer, will return to the market as the buying season slows over the fall and winter months.