If you are involved in the housing market, and I suppose most of you are, you know very well that this is a numbers business. We are all surrounded by data related to housing day after day, and sometimes it can be a bit overwhelming, even for an economist like me.
Well, today I would like to take a few minutes to talk about some of the data sets that I think are particularly important to track and offer you my insights on them.
There is no question that the property real estate market truly was a beacon of light as we progressed through the pandemic period. Even though the market stopped last spring when COVID-19 hit the nation, it recovered remarkably quickly, unlike many other parts of the US economy that are still suffering today.
This is important, as housing makes a significant contribution to the overall economy. For example, last year, spending on new home construction, Real estate broker and residential remodeling fees amounted to about $ 885 billion or 4.2 percent of gross domestic product.
But the real number is much higher than that when you add up all the spending on all household services. The total amount of money spent on housing as a whole was about $ 3.7 trillion or 17.5 percent of the nation’s economy.
So we know that the housing market is a very important part of our economy, but can that number continue to grow? We’ll see.
The chart below shows the number of single-family homes for sale since 1983. As you can clearly see, there has never been a time, at least since national records were kept, in which they were less houses for sale anytime.
And this is a problem because the biggest problem facing the market today is that the demand for homes far exceeds the supply.
One report that I follow very carefully, and I’m sure many of you do too, is the National Association of Realtors. pending home sales index, shown below.
Although it is not a perfect indicator, as the survey only covers about 20 percent of all homes that remain pending, gives us a pretty good idea of what the future holds given that, other things being equal, about 80 percent of pending homes close in about two months, making it a leading indicator.
You can clearly see the massive pullback last spring due to the pandemic, but this was followed very quickly by a very significant increase.
It was retired again last winter, but I would suggest that this was due more to a lack of homes for sale than anything else. However, watch the March peak.
You may be thinking this is a large number, but I caution everyone not to pay too much attention to the changes from year to year as they can be misleading. You see, the index jumped because it was comparing itself to last March, when the pandemic really started.
When we look at closed sales activity, it actually aligns quite well with the slope home sales index, which fell in January and February. This is reflected in the contraction in closed sales that we saw this spring. What if the index is exact, suggests that we may see a rebound in closed sales activity over the next few months.
Of course, any time the demand for housing exceeds the supply, there is a solution, and that would be the construction of more houses.
But as you can see here, even though more homes were started as we emerged from the financial crisis, the number today is essentially the same as two decades ago and has been declining for the past two years.
That’s significant, as the country has added more than 12 million new households during the same period, further boosting demand for housing. If there are no new homes to buy, well, that does one thing: put more emphasis on the resale market, which has already led to very significant price increases.
New housing market
But this particular report also offers some additional data sets, which I think give more clarity to the state of the new domestic market.
Before the housing market crashed, you can see that most of the new houses that were on the market for sale were being built at the time, but, as the housing bubble burst, the market fell and the proportion of homes that were completed. now on sale, naturally, pink.
But what I want you to look at is the far right of the table above. Do you see the increase in the proportion of homes for sale that have yet to start?
Well, given the massive increase in construction costs, builders have understandably become much more cautious and are trying to sell more houses before they start building to mitigate some of the risk. It also tells me that they see a demand that is not being met by the existing housing market and are looking to take advantage of it.
When we look at new home sales, you can see that the trend, in essence, follows the number of homes for sale, but I have a few things to warn you about.
First of all, these figures do not represent closed sales, like the Census Bureau, which prepares this data set, considers a house sold once it has been hired. This makes sense, since a home can be sold even before construction has begun. In essence, it is more similar to the NAR Pending Home Sales Index than anything else.
Now look at the sales by construction stage on the right. You can see that when the pandemic started, new homes that were ready to move in were what buyers wanted, and that accounted for more than 42 percent of total new sales in April.
As the supply of finished homes declined, homes being built took most of the sales, as they have historically. However, look at April. Most of the sales (37.7 percent) corresponded to homes that had not yet started.
Again, this supports the theory that builders remain cautious given increasing costs, but it also shows that the resale market does not meet buyers’ needs, so they were willing to wait, probably a considerable time. , for your new home to be built.
Of course, the couple of datasets I’ve shared with you today are just the tip of the iceberg when it comes to housing-related numbers They should all be tracking, as they can tell a story that can affect everyone involved in the development or sale of homes.
In addition to the data we’ve discussed today, you need to be well versed in mortgage rate trends, demographic changes, building permitting activity, and the broader economy, and you need to understand all of these figures locally and nationally.
For the vast majority of households, buying a house will be the most expensive thing they will ever buy. And given the memories of the housing collapse, as well as the significant spike in home prices we’ve seen since last summer, it’s now more important than ever for you to be able to share your knowledge with your clients and be able to advise them. respectively.
For a big picture that includes all the data, watch the full video above.
Matthew Gardner is the chief economist of Windermere Homes for Sale, the second largest regional real estate company in the country.