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Single-Family Housing Starts Fell In January, Despite What The Headlines May Have Told You
Annualized Single-Family Housing Starts dropped 1 percent in January to 413,000 units nationwide, it’s lowest reading almost 2 years.
A “Housing Start” is defined as a home on which construction has started.
Now, if you had only seen the Housing Starts story in the headlines today, you wouldn’t have known that single-family starts fell at all. It’s because of how the story is being reported.
Most commonly, newspaper headlines are reading something similar to “Housing Starts Jump 14.6%” with the lead paragraph making mention that “housing starts are at their highest levels in 4 years”.
It’s a true statement, but it’s misleading, too.
This is because, despite the Census Bureau reporting Housing Starts by property type — single-family, multi-family, and apartments — the media often lumps them into a single data set.
It’s a categorization that helps investors in homebuilder stocks, but it does little for everyday Scottsdale home buyers. The huge majority of buyers aren’t buying multi-units or whole apartment buildings — they’re buying 1-unit homes.
Here’s how January’s Housing Starts broke down by type:
- Single-Family Homes : Down 4,000 units, or -1%
- 2-4 Unit Homes : Negligible change
- Apartment Buildings : Up 46,000 units, or +80%
Clearly, the surge in Housing Starts can be attributed to the rapid rise in the 5-unit-or-more sector. Single-Family Starts were weak, by comparison.
Even with all of this noted, however, we can’t even be certain that the January Housing Starts data is accurate anyway. A footnote in the government’s report shows that, although single-family starts are said to have decreased 1 percent, the data’s margin of error is ±8.6%.
This means that the true Single-Family Housing Starts reading may be anywhere from -9.6% to +7.6%. The data is throw-away. Housing Starts may have actually increased in January, but we won’t know until revisions are offered later this year.
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Home Builders Report Higher Sales Levels In January
Homebuilder confidence in the market for newly-built, single family homes appears stable as the spring buying season gets underway in Mesa.
The confidence reading is recorded and reported monthly by the National Association of Homebuilders. For the 4th straight month, the group’s Housing Market Index reads 16.
As a market indicator, Housing Market Index has been tracked for more than twenty years and reports on a 1-100 scale. A value of 50 or better indicates “favorable conditions” for home builders.
HMI hasn’t read higher than 50 since April 2006.
Broken down, the Housing Market Index is actually a weighted composite of 3 separate surveys measuring current single-family sales; projected single-family sales; and foot traffic of prospective buyers.
February’s surveys showed slight improvement as compared to January, overall.
- Single-Family Sales : 17 (+2 from from January)
- Projected Single-Family Sales : 25 (+1 from January)
- Buyer Foot Traffic : 12 (unchanged from January)
It’s notable that the current sales levels were higher in February, and that projected sales levels for the next 6 months are higher, too.
For home buyers AZ across , this month’s Housing Market Index reading may foreshadow tougher negotiations in the months ahead with builders. The likelihood of getting discounts and free upgrades may be diminished as builders see their respective sales levels grow, and as the economy expands.
Coupled with rising mortgage rates, home buyer purchasing power may never be as high as it is today.
Therefore, if your plans call for buying a newly-built home this year, think about moving up your time frame. Builder confidence appears to have bottomed. As it rises, so should home prices.
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Home Builders Slowed By Economy, But Seeing More Foot Traffic
Homebuilder confidence held firm for the second straight month this month, according to the National Association of Home Builders.
The monthly Housing Market Index registered 16 out of a possible 100. January’s reading is three points higher than the 2010 low-point, set in September, and in-line with last year’s average reading.
According to the NAHB, the market for newly-built, single family homes remains relatively weak “following a below-expectations finish in 2010″. Builders expect a better 2011.
The Housing Market Index dates to 1985. It’s a composite of surveys which gauge the builders’ perceptions of the new home-buying market.
There are 3 surveys and they ask:
- How would you rate market conditions for sales of new homes today?
- How would you rate market conditions for sales of new homes 6 months from now?
- How would you rate the foot traffic of prospective buyers of new homes?
The answers are then collated and weighted, and used to produce the Housing Market Index.
In January, market conditions for current and future sales were deemed to be flat. Foot traffic is seen as increasing. For homebuyers of new homes in Phoenix , this data may foretell of more bidding wars in the months ahead.
More active buyers means more competition for homes. It may also mean fewer concessions from builders as confidence starts rising.
If you’re in the market for a newly-built home, watching the Housing Market Index may be sensible. Each builder is different, of course, but as the overall market sentiment falls, buyers can be more likely to get “a deal”. That’s not the case once confidence is rising.
The HMI is plateaued. If it resumes rising later this year, expect new homes to get more costly.
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Why Builder Confidence Surveys Matter To Buyers Of New Homes
Home builder confidence is holding firm this month, according to the National Association of Home Builders.
The group’s monthly Housing Market Index survey posted 16 for December. That’s the same value as from November. It’s also equal to this 2010’s average HMI reading.
HMI is scored on a scale of 1-100, and is a composite of 3 separate home builder surveys measuring single-family sales; projected single-family sales over the next six months; and prospective buyer foot traffic.
The results of the 3 surveys were as follows:
- Single-Family Sales : 16 (unchanged from November)
- Projected Single-Family Sales : 25 (unchanged from November)
- Prospective Buyer Foot Traffic : 11 (from 12 in November)
Values of 50 or better indicate favorable conditions for home builders. Values below 50 indicate unfavorable conditions.
In other words, although improving, conditions for home builders remain less from excellent. Home buyers in Mesa can use this to their advantage. When builders feel pressure from the market, they’re more likely to offer discounts.
On the other hand, job growth is returning, the economy is expanding, and mortgage rates are rising. These 3 factors are thought to boost housing markets. So, despite an unfavorable HMI reading, home builders might still less willing to “make a deal”; holding out for a better 2011.
November’s strong Housing Starts data supports that line of thinking.
If you’re buying a newly-built home , or expect to buy sometime in 2011, keep an eye on home builder sentiment surveys. The better the builders feel, the more you may be asked to pay to buy your next home.
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by Mark Tayloron
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