The Market Is Bouncing Back: Strong Signs of Recovery Despite April’s Dip

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Existing-home sales slid 3.4% in April from March, according to the National Association of REALTORS This Week in Real Estate. Despite home sales dipping in April, most of the housing data is indicating that the U.S. housing market is in broad recovery from the trough of the second half of 2022. A combination of variables is making it a slow one, aside from higher interest rates influencing affordability there is simply not enough inventory to meet demand. Homebuilders are responding to the inventory crunch by bumping up construction of new homes. Single-family starts and permits increased 1.6% and 3.1% in April, respectively. What is surprising is how strong today’s job market is and even more surprising is the fact it appears to be getting stronger. The average unemployment rate between 1948 – 2023 is 5.7%. At 3.4% April marked the second month since May 1969 (January 2023 the other) where the unemployment rate was below 3.5%. Below are a few newsworthy events from the third week of May that influence our business: 

Single-Family Starts Show Gradual Improvement in April. A lack of existing inventory and stabilizing mortgage rates helped push single-family production up to the highest rate thus far in 2023. Overall housing starts in April increased 2.2% to a seasonally adjusted annual rate of 1.40 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The April reading of 1.40 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 1.6% to an 846,000 seasonally adjusted annual rate. However, this remains 28.1% lower than a year ago. Single-family starts are showing gradual improvement from the beginning of the year, and this is reflected in the NAHB/Wells Fargo HMI, which has increased every month of 2023 and reached the key break-even level of 50 in May. As the Federal Reserve nears the end of its tightening of financial conditions, we expect mortgage rates to moderate in the months ahead, and this will lead to a gradual improvement in single-family production. Overall permits decreased 1.5% to a 1.42-million-unit annualized rate in April. Single-family permits increased 3.1% to an 855,000-unit rate but are down 21.2% compared to a year ago. The number of single-family homes under construction in April fell to 698,000, down 16% from a peak total of 831,000 in May 2022. Read the full story here.

Spring Home Sales Hounded by ‘Push-Pull Demand.’ Existing-home sales fell last month as the spring real estate market remains fluid and sensitive to the ongoing inventory shortage and changing mortgage rates. Existing-home sales, which include completed transactions for single-family homes, townhomes, condos, and co-ops, dropped 3.4% month over month in April. “The combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand,” says NAR Chief Economist Lawrence Yun. “Home sales are bouncing back and forth but remain above recent cyclical lows.” Unsold inventory is at a brisk 2.9-month supply at the current sales pace. Seventy-three percent of homes sold in April were on the market for less than a month. Properties typically remained on the market for 22 days, down from 29 days in March but up from just 17 days a year earlier.  Read the full story here.

Lack of Existing Home Listings Boost Builder Confidence. Home builders’ attitudes about the market for newly constructed homes continued to improve in May, partially due to the lack of available pre-owned homes for sale. The National Association of Home Builders (NAHB) said the NAHB/Wells Fargo Housing Market Index which measures builder confidence jumped 5 points to 50, the fifth straight month the index has risen. It was also the first time the index has reached the midpoint of the index since July 2022. NAHB’s chief economist Robert Dietz said “New home construction is taking on an increased role in the marketplace because many homeowners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level. In March, 33 percent of homes listed for sale were new homes in various stages of construction. That share from 2000-2019 was a 12.7 percent average. With limited available housing inventory, new construction will continue to be a significant part of prospective buyers’ search in the quarters ahead.” Read the full story here.

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