Recent Reports to Fed Show More Cooling in Housing Markets
A Jan. 17 Federal Reserve Board “Beige Book” compilation of anecdotal reports on the recent state of the economy finds the housing market continuing to soften in most parts of the country, with high inventories of unsold new homes reducing residential construction.
However, a common refrain on markets represented in the Fed’s regional districts is that the downturn may be bottoming out and that the direction of housing activity will become clearer this spring with the arrival of the peak home buying season.
Home sales were spotty in just about the entire nation, with the exception of some parts of Virginia and North Carolina, and appreciation in home prices continued to slow.
More specifics are included in the rundown of reports to the fed districts:
- Boston. Residential sales volume continued to slow from the high levels of previous years across New England, with year-over-year declines exceeding 10% in Massachusetts, Connecticut and New Hampshire. In Massachusetts, single-family homes were lingering on the market for an average of 130 days and it was taking 120 days to sell condominiums, an increase of more than 35 days since November 2005. The single-family inventory in the state was up 25% in November from a year earlier and the supply of condos was almost 37% higher, leaving the market with a more than 11-month supply of unsold homes. One Fed contact in Rhode Island reported having nearly six times as many listings as last year.
Contacts attributed slow sales to prospective buyers exercising “patience” rather than to unrealistic pricing, with median sales prices continuing to fall across the region. The median single-family price declined 4% from November 2005 to November 2006, which was the 10th straight month of price declines. Condo prices, on the other hand, were up 2% for the same period, although this was the first increase in five months. Existing home sales prices were also weak, with four of the six New England states registering at least one quarter-to-quarter decline in the second and third quarters of last year.
Contacts did notice that the sales and price declines have been slowing down, suggesting that the region may be approaching a bottom, although the extent to which this represents prospects for recovery “is by no means clear.”
- New York. Single-family construction permits slipped roughly 30% in November from a year earlier, while multifamily permits held steady. Home builders in New Jersey reported that the market stabilized somewhat in December but remained weak. Discretionary sellers in the resale market have been withdrawing, reducing the inventory of existing homes but also reducing the pool of prospective new home buyers. The state’s builders have cut back their plans for new development substantially this year, especially in active-adult communities.
Realtors® in New York State reported that both single-family sales and prices were running lower than a year earlier in the fourth quarter. However, Manhattan’s co-op and condo market was showing resilience in the fourth quarter, with prices little changed and sales activity picking up noticeably from a sluggish third quarter; listings declined, although they remained “quite high.” Manhattan’s apartment rental market continued to strengthen, with a contact at a major real estate firm characterizing conditions as “extremely tight at year end.” Rents are up an estimated 5% over a year earlier, with larger increases on smaller, entry-level units in recent months. “While the rental supply is constrained by a limited number of new rental buildings under development, a significant proportion of new condos are being bought by investors, who have leased them.”
- Philadelphia. Some bankers indicated that demand for residential mortgages appeared to be firming in their market areas, but other bankers said it remained weak, leaving the outlook uncertain.
- Cleveland. Reports on new home construction in the district were mixed, with most builders saying the decline in sales had continued into November. Looking forward, almost all the residential contractors expected 2007 activity to mirror the second half of 2006 and they said that they had significantly curtailed, or eliminated, “spec” building.
On the positive side, materials costs have generally leveled off, with most contacts reporting a decrease in lumber prices. Contractors reported that home prices had held steady for the past six weeks and they were hesitant to offer buyers any additional discounting. Many builders reported reducing the size of their labor force last year to match market conditions and do not foresee the need for additional lay-offs in 2007, although there won’t be any wage increases.
- Richmond. Contacts in Richmond, Va. reported a 9% increase in sales volume in December over a year earlier, and a contact in Fairfax, Va. said that “a good rebound” in the number of houses sold had resulted in a nice drop in the inventory level in that area. Contacts in Charlotte and Asheville, N.C. reported strong activity, with sales in the latter market exceeding those of a year earlier. An agent reported that his sales in the Greenville, S.C. market, which has been “extremely strong,” increased 15% last year over 2005. But an agent in Fredericksburg, Va. said that his inventory remained very high. A home builder in the Tidewater area reported no real change in the number of housing starts or building permits, adding that demand is “just not there.” House prices held steady across most areas of the district.
- Atlanta. Florida reported the largest declines in home sales and new construction in the district, and levels of those activities remained mixed elsewhere, although inventories of homes for sale remained high across much of the region. Most Florida real estate agents reported price reductions on existing homes for sale, and there were similar scattered reports in other parts of the district as well. The outlook for residential construction appeared to be strong in southern Louisiana and Mississippi, boosted by post-Katrina rebuilding efforts, but weak market conditions were expected to persist in most other areas over the next several months.
- Chicago. Residential construction continued to slow in the district, but the decline was smaller than in the previous reporting period. Home building slowed in Michigan, although one contact saw signs of a recovery in the Chicago area. Builders reported that the supply of unsold, speculative homes remained high and that showroom traffic edged down. Contacts reported steady or declining home values in many areas of the district, and one in Illinois noted that many builders were adding non-price incentives to sell new homes.
- St. Louis. Home sales were down in November from a year earlier in most of the district, with declines of 4% in St. Louis; 2% in Little Rock, Ark.; and 1% in Louisville, Ky.; they were up 7% in Memphis, Tenn. For the same period, single-family housing permits were down in every metro area in the district, declining 30% in Louisville, 24% in St. Louis, 11% in Memphis and 10% in Little Rock.
- Minneapolis. While commercial real estate was solid in the district, the residential sector continued to slide. Bankers and builders in Bozeman, Mont. characterized the housing market as oversupplied. While the inventory of unsold homes remained very high in Minneapolis-St. Paul, in late December it stood at its lowest level since last February.
- Kansas City. Home sales declined and inventories remained above year-earlier levels in December and early January. Contacts reported weakness concentrated in the higher-priced segment of the market, with some strength in lower-priced homes. Builders indicated that home starts remained weak. Overall home prices were unchanged from the previous month and remained below year-earlier levels. Expectations for sales were mixed, with some anticipating price declines in coming months and others voicing optimism, based on lower interest rates and a positive economic outlook.
- Dallas. Home sales have been moderating from the vigorous growth experienced throughout most of 2006, and inventories have been inching up. Builders reported an increase in cancellations, leading some to pull back on starts. The market was much weaker for lower-priced homes than for homes at higher price points, and Dallas/Fort Worth was weaker than the other major metro areas in the district, some of which were still quite hot. Home prices continued to rise at a modest pace.
Apartment vacancies in Dallas and Houston were on the increase by year’s end, largely as the result of Hurricane Katrina evacuees continuing to move out. Despite the decline, overall occupancy rates remained above 90%. Austin’s apartment market was performing better than most — with an occupancy rate of 96% and rising rents.
- San Francisco. The pace of home sales and price appreciation cooled further for existing and new homes in most areas of the district during the survey period. Home price appreciation slowed to the low single digits in several previously hot areas, such as parts of Southern California and the San Francisco Bay Area. Home builders in the district continued to work down unsold inventory by offering significant incentives to entice buyers. Slower home sales continued to dampen residential construction activity, particularly for condominiums.
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NAHB Kit Gives Builders Back-to-Basics Tips in Changing Market
With the current cooling of the nation’s housing market expected to persist into the middle of next year, NAHB has developed a comprehensive online toolkit geared to providing association members with information that will help them prosper in today’s changing business environment.
To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar.
For assistance, call the NAHB Member Service Center at 800-368-5242.