The Year Of The “Plow Horse Housing Recovery”
Some key reports today on architecture billings, existing home sales, and new residential construction provide additional evidence that a U.S. housing recovery is underway:
1. Reuters – “A leading indicator of U.S. construction activity rose last month to its best level in five months, indicating that demand for design services is expanding, an architects’ trade group said on Wednesday. The Architecture Billings Index (ABI) rose 1.5 points to a reading of 50.2 in August, according to the American Institute of Architects. Any reading above 50 indicates an increase in demand for architects’ services. The ABI is considered a predictor of U.S. construction activity nine to 12 months ahead. A separate measure of inquiries for new projects rose 0.9 points to 57.2, the group said.”
MP: Both the Billing Index (ABI) and the New Projects Inquiry Index have risen in each of the last three months, and the ABI was at the highest level last month since March, while the inquiry index in August was the highest in six months.
2. Existing U.S. home sales surged in August by 7.8% over July, marking the highest monthly increase in home sales in a year, according to today’s National Realtors Association (NAR) report. Compared to last August, home sales this year were 9.3% higher, and last month’s increase was the 14th consecutive year-over-year increase in home sales. The median home sales price in August was $187,400, a slight decrease from July’s median price of $187,800, but above last August’s median price of $171,200 by 9.5%. According to the NAR, “The last time there were six back-to-back monthly price increases from a year earlier was from December 2005 to May 2006. The August increase was the strongest since January 2006 when the median price rose 10.2 percent from a year earlier.”
Other positive signs from today’s report include: a) a reduction in the share of distressed sales in August this year (22%) compared to last year (31%), b) a reduction in the median marketing time from 92 days in August 2011 to 70 days last month (almost one-third of homes sold in August were on the market for less than a month), and c) a drop to only a 6.1 month supply of homes in August at the current sales pace, which except for a 6.0 month supply in January is the lowest inventory level of existing homes for sale since April of 2006.
3. Associated Press — “U.S. builders started work on more homes in August, driven by the fastest pace of single-family home construction in more than two years. The increase points to steady progress in the housing recovery.
The Commerce Department said Wednesday that construction of homes and apartments rose 2.3 percent to a seasonally adjusted annual rate of 750,000 last month. That’s up from 733,000 in July, which was revised lower from last month’s initial estimate. Single-family housing starts rose 5.5 percent to an annual rate of 535,000 homes, the best pace since April 2010.”
MP: Single-family home starts last month were the highest for the month of August since 2008, and were 27% above last year, marking the largest year-over-year increase since April 2010. Further, the number building permits issued in August was 24.5% above permits in the same month last year. In both July and August, building permits were above 800,000 in each month, and it’s been four years since there has been more than 1.6 million permits issued in a two-month period.
Bottom Line: The evidence continues to accumulate pointing to a gradual, but steady housing recovery that is underway in the U.S. As with any economic or housing recovery, it can be expected that the improvements in the U.S. housing market will be somewhat choppy at times. But the fact that most of the main housing indicators (existing-home sales, new home sales, pending sales, housing prices, asking prices, home affordability, etc.) are showing gradual, but consistently positive signs of improvement would support the growing consensus that a sustainable housing recovery is underway.
Brian Wesbury et al. at First Trust have described the slowly improving U.S. economy as the “plow horse economy,” which keeps moving gradually forward despite the pessimistic media reports of “gloom and doom.” Perhaps it would also be appropriate to describe the ongoing recovery in the U.S. real estate market as the “plow horse housing recovery” – which keeps making gradual, but steady improvements month after month.