Although it’s very easy to get caught up in the news that the national S&P/Case-Shiller Home Price Index for January showed a continued decline, the truth is that both the economy and the housing market are improving.
In addition, it’s important to note the most critical flaw of the index: because it summarizes the direction of prices over a three-month rolling period, it can miss increases that are occurring now. Add to that mix the fact that it relies on data from home closings and not contracts, and it’s easy to see why its published figures may not correlate to what you’re seeing and hearing in your own markets.
One more immediate report to start tracking might be the WMM Auction Index, which is a monthly measure of prices from auctions in 20 different markets by the auction housing Williams, Williams and McKissick. Due to the speed of the auctions (which are marketed 30 days in advance), a tight closing period (30 days) and a fairly large sample size (10,000 to 15,000 sales per month), the WMA Index has led swings in the Case-Shiller Index by up to 90 days since being launched in 2007.
In the case of January 2012, although Case-Shiller’s numbers showed a decline of 0.8% from December 2011, the WMA Index rose by 1.7% for the exact same time period. Consequently, we will be adding this monthly index to the regular MetroIntelligence Economic Update featured in the free, three-times-per-week BuilderBytes email newsletter.
The National Association of Realtors® (NAR) is also reporting continued improvement, with February 2012 existing home sales up by 8.8% since the same month of 2011. At the same time, sales prices for all housing types rose by a small yet positive 0.3% even though distressed homes (both foreclosures and short sales) accounted for 34% of the total.
At current sales rates, existing home inventory would take 6.4 months to sell as total listed inventory has fallen by over 19% over the past year. NAR’s pending home sales index – which reflects contract signings -- is also up by 9.2% over the past year. Should sales activity continue at present levels, we could very well see the best housing market (relatively speaking, of course) in five years.
Even sales of new homes are coming off their historic lows, rising by over 11% over the twelve-month period ending in February 2012 to a seasonally adjusted rate of 313,000 units. Not surprisingly, the increase varies between geographic regions, with the best performances noted in the West (up by 32.8%) and the Mid-west (up by 29.0%). New home inventory has also fallen over the past year to just 150,000 units, which represents a 5.8-month inventory timeline at current sales rates.
Housing starts, long seen as one of the best forward-looking indicators of future sales and leasing activity, rose by nearly 35% between February 2011 and 2012 to 698,000 units. Although the increase in starts for multi-family structures was far higher than the overall average at 108%, single-family starts still rose by 17.8%. During the same time period, building permit activity rose by about the same amount, posting an overall increase of 34.3% and averaged by gains of 23.6% for single-family homes and nearly 60% for multi-family buildings of five units or more.
Finally, both consumer and builder confidence are holding their own even after the recent rise in gas prices. For consumers, as long as gas prices don’t float up to $5 per gallon, their optimism about the improving job market is helping the University of Michigan’s Index of Consumer Sentiment to hold onto the last five months of gains. Similarly, NAHB’s Housing Market Index continues to hold at 28, its highest level since June of 2007.
So, while the housing rebound may seem uneven and spotty, it is definitely underway. Want to know what the economic tea leaves foretell for your regions and projects? Contact us at MetroIntelligence and we’ll do our best to assist you.
