NAHB Sees Promising Signs For Housing

As parts of the U.S. reopen while the country is still struggling to mitigate the COVID-19 virus, the National Association of Homebuilder’s (NAHB) chief economist Robert Dietz foresees that some sectors of the U.S. economy will have a greater potential to rebound faster than others. The NAHB forecast is based on housing being a leading sector in the recovery because housing was underbuilt entering into this government-imposed recession and low interest rates will help support demand. The association found that while most metrics are down, recent data show the housing market is doing better than expected. The question now is whether the recent relative strength is a temporary bounce-back caused by pent-up demand, or the foundation on which the economy can build during the summer.

While the benchmark measure of builder confidence, the NAHB/Wells Fargo Housing Market Index (HMI), rebounded in May, rising seven points to a still negative reading of 37, the gain pointed to improvements for housing starts ahead, with April being a low point for the current recession. Single-family starts were down 25% in April from March, declining to an annualized rate of 650,000. The April level marks the slowest annualized pace since 2015 and is off 37% from February’s strong rate. The strength of the early 2020 data means that even with recent declines, single-family starts remain 1% higher for the first four months of the year compared to the first four months of 2019. 

The NAHB Multifamily Production Index (MPI) showed a 22-point dip in the first quarter, falling to a negative reading of 27, which is consistent with declines for the multifamily forecast as job losses mount. Multifamily starts declined 40.5% in April to a 241,000 annualized rate, or a 62% decline from the peak January rate. 

Existing home sales, as estimated by the National Association of Realtors, experienced the largest decline in 10 years, an 18% drop in April, although current inventory remains tight at only a 4.1-month supply.

Another indicator of the potential gains for housing is that pricing strengthened with a 7% year-over-year gain. Surprisingly, sales of newly-built single-family homes were essentially flat from March to April at an annualized pace of 623,000. Inventory was at a relatively healthy 6.4-month supply in April, while pricing dropped 8%.
 
Another positive indicator from the Mortgage Bankers Association: mortgage applications for home purchases have increased for six straight weeks, marking a 54% gain since the low point in April. Coupled together, data show a housing market that experienced declines in March and April, but for which considerable pent-up housing demand is waiting to be unlocked. Risks remain, however, including whether recent demand improvements are merely temporary and whether new rounds of lockdowns are in store for the fall. And, as the economy reopens, recent job losses will need to be reversed.

SOURCE: The Weekly Propane Newsletter, June 4, 2020. Weekly Propane Newsletter subscribers receive all the latest posted and spot prices from major terminals and refineries around the U.S. delivered to inboxes every week. Receive a center spread of posted prices with hundreds of postings updated each week, along with market analysis, insightful commentary, and much more not found elsewhere.