NAHBLower mortgage rates and limited existing inventory helped to push new home sales up in March, even as builders continue to grapple with increased construction costs and material supply disruptions.
Sales of newly built, single-family homes in March increased 9.6% to a 683,000 seasonally adjusted annual rate from a downwardly revised reading in February, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
“A lack of resale inventory combined with many builders offering price incentives helped to push new home sales higher in March,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a builder and developer from Birmingham, Ala. “However, sales are down 3.4% compared to a year ago because of the shortage of electrical transformer equipment and building material price volatility.”
“The average Freddie Mac mortgage rate gradually fell from near 6.7% at the beginning of March to 6.3% at the end of the month, and this helped to push new home sales higher in March,” said Danushka Nanayakkara-Skillington, NAHB’s assistant vice president for forecasting and analysis.
A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the March reading of 683,000 units is the number of homes that would sell if this pace continued for the next 12 months.
New single-family home inventory fell 9.5% in March, however, it remained elevated at a 7.6 months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced.
Let's Expand Our Reach To Each Other
EPAB President’s Message
Delton Deal, PresidentEl Paso Association of Builders
I’d like to propose a novel idea, let us use each other as a sounding board to help expand our depth. I know we all have this need to be different and want to set our company apart. I think we have become so competitive that we’ve forgotten that we are all in the same business.
The builders association mission statement is to strengthen the building industry through membership and advocacy. Surely by membership it does not just mean numbers. Like referenced in last month’s issue, I don’t think it’s size of the membership that makes us great. I would like to think that it’s the team work and the shared commitment to excel, to give back, to push beyond just average and the willingness to help each other when we can.
I’ve long believed (before it became a cliché) that team works make the dream work. By team, I mean all of us pulling and pushing in the same direction to achieve our own success. I don’t think that competition is the enemy of teamwork, but that trying to each be exceptional in our own way make us challenge our own thought process. The one missing element is the willingness to share, not every detail but the concept of helping our fellow human so every step is not pain staking for the new guy. This may come in the form of advice, but it can also take the form of partnerships where you both support each other’s businesses while also marketing your own.
Now please keep in mind that i’m not talking about giving your competition the secret sauce of your business. Just trying to create a more open environment that could help foster the business industry as a whole. El Paso has an strong association because of the relationship of all its members builders and associate members. but can we be even better,? I believe we have yet to reach our full potential. Over the past 4 years we have become strong financially and our membership is stronger than ever. The one element I see that we should now focus on is getting every builder in El Paso back in the room and we continue to face mounting attacks on our industry from every front. Get the full volume of perspectives for every voice and truly be cathartic.
Being one of the newest builders in the city, I can tell you first hand that it was a blessing when we started in this industry to have so many veteran builders willing to sit and talk about the do’s and don’ts. If an effort to give back that’s why i think we should embrace the reaching out to others and helping where we can.
Executive Message
Vote NO to Prop K, Vote NO to Prop F
By Ray AdautoExecutive Vice President, EPAB
I do not know how many times I have to say it for those who think these propositions are ok. To me it is about jobs, the economy, and a rejection of El Pasoans to be able to decide for themselves. In reality we brought this on upon ourselves because we don’t vote and we’re an easy target.
If we have learned nothing else from these propositions is that most voters just are not interested or rely on someone else to worry for them, sometimes with grave consequences. Prop K was born east of us, Austin. It is parent a single-minded leftist group intent on making radical changes to local governments, winning as few at a time, indoctrinating some into the movement, and in effect changing millions of lives who just do not care, or worse won’t take a stand against them. I told you before that the signature gatherers did not know who they worked for, what the petition said, or what the consequences of simply asking if I supported clean air and water. Much like those who simply looked at it as getting signatures without saying too much, the signers of the petitions are equally to blame for not asking or studying the issue before signing. I know some of you were duped into signing, and now you see how easy it is to “let someone else” figure it out for you. Well friend, we have figured it out, and now you can atone by going to vote and saying NO.
Like the ads say, this is a job killer, potentially awfully expensive legal battle, deeply rooted effort to test the system not only locally but nationally. If you think this is a local agenda, then you are mistaken. Don’t be duped. Go vote. Regain your rights to your life and support your industry.
ECONOMIC OUTLOOK
Elliot EisenbergEconomic & Policy Blog
Elliot Eisenberg, Ph.D. is a nationally acclaimed economist and public speaker specializing in making economics fun, relevant and educational.
Golden Growth
At just over $2,000/oz, gold is within striking distance of its high of $2,069.40 set in 8/20. With the Fed raising rates, gold seems unattractive. However, because it’s priced in dollars, the decline in the dollar has made gold cheaper for foreign investors. Moreover, markets must think the Fed will stop raising rates soon and will quickly lower them, and inflation will remain elevated. Falling Treasury yields also help.
Recession Ratings
Leading economic indicators and manufacturing activity are signaling recession, labor markets and consumer spending aren’t. However, the unemployment rate is a coincident/lagging indicator. Moreover, the Bloomberg recession indicator and the NY Fed curve-based recession model are at 55% and 60%, respectively. Every time either model rises above 40% a recession has followed since 1985, and for the NY Fed model it’s been accurate seven out of eight times since 1960.
Minimal Misery
After peaking at a painfully high 15% in 4/20, the Misery Index, the sum of the unemployment rate and the annual inflation rate, fell steadily and bottomed out at 7.7% during 1/21. It then rapidly rose due to, among other things, supply-chain issues, and peaked at a vexing 12.5% in 6/22. It has since steadily fallen and is now 8.5%. For context, the index peaked at 21.9% in 5/80.
Rent Reversal
Median rent fell 0.4% Y-o-Y in March to $1,937, the first decline since 3/20. Rents are 19.9% higher than they were in 3/20. The biggest decline was in Austin, where rents fell 11% to $2,104, followed by Chicago where they fell 9% to $2,206. Rents rose the most in Raleigh, up 17% to $2,080, followed by Cleveland where they rose 15% to $1,530. NY’s median rent is tops at $4,022.
Earnings Estimate
At present, worker quit rates are running at about 2.6%/month, which results in average hourly wage growth of about 4.5%/annum. At that rate, and assuming inflation elsewhere becomes quiescent, inflation will run at about 3.5%/year, one-and-a-half points above the Fed’s desired rate. To get inflation down to 2%/year, will require average hourly wage growth to decline to 3%/year and to get that quite rates must fall further to 2.2%/month.
March Moves
The March Y-o-Y Core CPI reading of 5.6%, up from 5.5% gives the Fed permission to raise Fed fund by 25bps on 5-3-23. But the hikes end there. Banking is struggling. System-wide deposits collapsed at a 30% annualized rate in March, resulting in outstanding credit contracting 3.4%. And while equities are holding up, cyclical sectors like real estate, banks, transportation, and consumer discretionary, are collectively 32% off their peaks.
Maybe May
Net March job growth was 236,000, the smallest increase since 12/19, except for -268,000 in 12/20. This, along with rising first-time unemployment claims, reduced job openings, and the decline in the work week, point to a softening but still strong labor market. Job creation remains double trend growth. Fortunately, the labor force participation rate rose, and wage growth continues declining. I suspect Powell raises rates one last time in May.
Technology Transitions
While generative artificial intelligence (think ChatGPT) may eliminate white collar jobs, unlike previous technological breakthroughs which came for blue collar jobs, the fear of large job losses is ludicrous. Electricity, telephones, the internet, and other innovations have never reduced the demand for labor and this tech breakthrough won’t either. By 2033 there will be abundant jobs with newfangled titles like Generative AI Coordinator, or VP of AI Sales.
CONSTRUCTION OUTLOOK
Supply Chain: Building Materials Prices Climb
According to the latest Producer Price Index report, the prices of inputs to residential construction less energy (i.e., building materials) climbed 0.3% in March 2023 (not seasonally adjusted). Since declining the last four months of 2022, the index has increased three consecutive months by a total of 1.6% but has been relatively stable over the past year.
The prices of goods inputs to residential construction, including energy, gained 0.1% over the month as a 6.4% decrease in energy prices offset increases in other product categories.
Distribution Transformers
As the shortage of distribution transformers continues, the PPI for power and distribution transformers increased 2.0% in March. Prices have surged 63.9% over the past two years and declined in just two months over that span.
Ready-Mix Concrete
The trend of ready-mix concrete (RMC) prices continued its historic pace as the index increased 0.7% in March after gaining 0.9% and 0.6% in January and February, respectively. RMC prices have increase 13.1% over the past 12 months and 24.2% since January 2021.
The monthly increase in the national data was broad-based geographically but was primarily driven by prices in the Northeast (+1.7%). Prices climbed 0.6% in the West, 0.9% in the South, and were unchanged in the Midwest.
Softwood Lumber
The PPI for softwood lumber (seasonally adjusted) fell 4.0% in March–the eighth consecutive monthly decline. Since peaking in March 2022, the index has fallen by more than half (-52.5%) and is now just 11.5% above the January 2020 level.
Gypsum Building Materials
The PPI for gypsum building materials decreased 0.1% in March after increasing 0.4% the month prior. Gypsum building materials prices are 11.8% higher than they were a year ago but began stabilizing in September 2022. Prices have been stable—up just 0.2%–in the six months since.
Steel Mill Products
Steel mill products prices increased 1.2% in March after climbing 2.5% in February. This was the second monthly price increase since May 2022. Even so, prices have dropped 25.2% since May 2022 and are down 15.1% over the past 12 months.
