Remodeling activity held up well during the third quarter of 2007, according to the National Association of Home Builder’s (NAHB) Remodeling Market Index (RMI). The current market conditions indicator increased slightly to 46.2 from 44.8 in the second quarter. And the future expectations measure comes in at 43.3, down just slightly from 44.6. Comparisons to third quarter 2006 (current market conditions: 47.8; future expectations: 45.4) show only a slight decline.
The RMI measures remodeler perceptions of market demand for current and future residential remodeling projects. Any number over 50 indicates that the majority of remodelers view the market conditions as improving. The RMI has been running slightly below 50 since the end of 2005.
“Buoyed by continuing strong demand for minor additions and alterations, the remodeling market is expected to end the year in pretty good shape,” said NAHB Remodelers chairman, Mike Nagel, CGR, CAPS, a remodeler from Chicago. “Though down a bit from the previous quarter, the remodeling market is not experiencing the dip in production and sales being seen by the new home building sector of the industry.”
Nationally, minor additions and alterations increased significantly during the third quarter to 47.07 (from 43.27), while major additions and alterations remained stable at 46.89 (from 46.36). Regionally, minor additions and alterations increased significantly in the Northeast to 56.68 (from 50.43) and Midwest to 57.44 (from 45.06).
The amount of work committed for the next three months rose slightly to 36.12 (from 35.91) and the backlog of remodeling jobs decreased to 44.93 (from 47.33). Additionally, owner-occupied remodeling increased to 49.1 (from 47.1), while renter-occupied remodeling declined to 38.7 (from 40.2).
Home Prices Post Record Decline
The state of the single-family housing market became grimmer with the announcement in December that U.S. home prices in 10 major metropolitan areas were down 6.7 percent in October 2007 from the same period in 2006, exceeding the previous record year-to-year decline of 6.3 percent in April of 1991.
The decline marks the 10th consecutive month of falling prices and the 23rd consecutive month of decelerating returns, according to the S&P/Case-Shiller home-price index, a closely watched indicator of home prices.
“No matter how you look at these data, it is obvious that the current state of the single-family housing market remains grim,” says Robert J. Shiller, chief economist at MacroMarkets LLC.
“Not only did the 10-city composite post a record low in its annual growth rate, but 11 of the 20 metro areas did the same. If you look at the monthly figures, every MSA went down in both October and September. Eleven of the 20 MSAs, in addition to the two composites, recorded their single largest monthly decline on record in October. For both the 10-city and 20-city composites this was a decline of 1.4 percent over September”
Miami surpassed Tampa in October, reporting a double-digit annual decline of 12.4 percent. Tampa followed with -11.8 percent, Detroit with -11.2 percent, and San Diego with -11.1 percent. Six of the metro areas are now posting double-digit declines in their annual growth rates.
Atlanta and Dallas finally entered negative territory, with declines of 0.7 percent and 0.1 percent, respectively, leaving only Charlotte, Portland and Seattle as the MSAs still experiencing positive annual growth rates.
Housing Starts Decline 3.7 Percent In November
Nationwide housing starts declined 3.7 percent to a seasonally adjusted annual rate of 1.19 million units in November as home builders continued to put the brakes on new-home production, according to newly released data from the U.S. Commerce Department.
“Builders are doing exactly the right thing by slowing production and allowing demand for new homes to catch up with supply,” noted Brian Catalde, president of the National Association of Home Builders (NAHB) and a home builder from El Segundo, Calif.
“Today’s report is consistent with what single-family builders have reported in our recent surveys, and is very much in line with our expectations,” said David Seiders, NAHB chief economist. “We expect the supply-demand balance to improve during the early part of 2008, supporting the early stages of recovery in starts and permits during the second half of next year.”
Single-family housing starts declined 5.4 percent in November to a seasonally adjusted annual rate of 829,000 units, the lowest level since April of 1991. Meanwhile, permit issuance for new single-family homes declined 5.6 percent in the month to 764,000 units, their lowest level since June of 1991.
On a regional basis, housing starts in November were down 1.5 percent in the Midwest, 16.3 percent in the Northeast and 6.9 percent in the West. Starts were up 0.3 percent in the South in November, although the region was down 27.4 percent on a year-over-year basis.
Market May Be Stabilizing
Existing-home sales rose slightly in November, indicating stabilization in housing in the wake of mortgage disruptions earlier this year, according to the National Association of Realtors (NAR).
Total existing-home sales — including single-family, townhomes, condominiums and co-ops — rose 0.4 percent to a seasonally adjusted annual rate1 of 5.00 million units in November from an upwardly revised pace of 4.98 million in October, but are 20.0 percent below the 6.25 million-unit level in November 2006.
Lawrence Yun, NAR chief economist, said the market appears to be stabilizing. “Near term, existing-home sales should continue to hover in a narrow range, just as they have since September, and that’s good news because it’ll be a further sign that the housing market is stabilizing,” he said. “Mortgage interest rates are near historic lows, and the most current data shows decelerating price declines, along with a modest reduction in the number of homes on the market.” Disruptions in mortgage availability and pricing peaked in August, which caused sales to slow in subsequent months.
The national median existing-home price for all housing types was $210,200 in November, down 3.3 percent from November 2006 when the median was $217,300, but there remains a downward drag on the national median as the mix of closed sales has shifted away from expensive markets.
“Just like the weather, there are large local variations in home prices,” Yun said. A quarterly examination of price performance on a metropolitan basis shows nearly two-thirds of metro areas are showing price increases. Among the many metros experiencing healthy local price gains are Farmington, N.M.; Reading, Pa.; Columbia, S.C. and Fargo, N.D.