Housing Reports (Housing Starts /FHFA Housing Price Index/Case Shiller Index
These indicators came out in the second half of August and together tell the story about the housing market. The first set of data, monthly housing starts, comes from the New Residential Construction series put out by the Bureau of the Census and the Department of Housing and Urban Development. This index measures three specific indicators of home construction – building permits (or the number of privately-owned housing units authorized by governments), housing starts (the number of homes and apartments on which construction began) and housing completions (the number of housing units that were completed during the month).
The second indicator is compiled by S&P and comprises and index of housing prices for existing single family homes in 20 major cities. Finally, the FHFA price index – which tracks prices outside of large cities where housing costs tend to be lower – was released by the Federal Housing Finance Agency. This index tracks federally guaranteed mortgages so does not reflect mortgage transactions greater than $625,000 in value in high cost urban areas and $417,000 in most other areas.
According to these three reports, the housing market is continuing to grow at a fairly robust rate. Building permits in July were at a seasonally adjusted annual rate of 1.052 million, 8.1 percent above June’s rate of 973,000 and is 7.7 percent above July of last year. Housing starts were up 21.7 percent over the prior year, and completions were up by 8 percent on the year.
The other two statistics together report on prices. According to the Case-Shiller Index, housing prices in the largest urban areas continue to rise, up by 0.9 percent in June, and 6.2 percent over the course of the past 12 months. While this is very rapid growth, it reflects a fairly substantial reduction from the price increases last year. The FHFA House Price Index, which measures the costs of homes outside of expensive urban centers also rose, up 0.8 percent in the second quarter – the 12th consecutive quarterly price increase. This is also a reduction in the rate of growth from 2013. Compared with last year, house prices are 5.25 percent higher showing that higher priced urban markets continue to outperform the country overall as the population becomes more concentrated.
We believe that the market for home sales, construction and prices will continue to grow; however, the pace will soften. This is partly due to the fact that prices and construction activity is already well up over its recession year lows, and while mortgage rates continue to be at relatively low levels, incomes and population are not growing rapidly. There is a natural tendency for home sales and prices to increase along with demographics, and younger people simply are not forming families at the same rate as earlier generations.
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