Housing inventory of existing homes was 3.8 months’ supply in March. It has been below four months for five months in a row. This is an extremely low number. To put this into perspective, in the 60 months between 2009 and 2014 months’ supply averaged 15.2.
March’s new home inventory was 4.6 months’ supply, also a historically (our data goes back to 2004) low number. Total supply was 3.9 months. Low supply coupled with low interest rates results in higher prices. According to Census Bureau data, the national median price of home sales including land rose 5.6% year on year (y/y), to $388,200 in March. Existing home sales averaged $278,500 in March, up 5.3% y/y.
Figure 1 shows inventory of new and existing houses from 2009 to present. Given the low inventory level and rising price combination, coupled with low interest rates and strong employment gains, home construction numbers should accelerate going forward. March’s starts and permit report support this theory. The seasonally adjusted annual build rate was 1,253,000, up 8.8% y/y and the permit rate was a slightly stronger 1,256,000 up 10.0% y/y
Figure 2 presents Case-Shuler home price index, from 2005 to present in both seasonally adjusted (SA), and non-seasonally adjusted (NSA), configurations on the left-hand Y axis and home foreclosure data on the right-hand Y axis. The chart shows that when foreclosures are low as they were in the 2005 through 2007 period and the present time, prices are high. In fact the two data sets are near mirror images of one another. The March NSA Case-Shuler home price index score was 193.49, the highest value since September 2007. Foreclosures were down 11% from the previous quarter and down 19% y/y. First quarter foreclosures were reported at 234,508 properties, the lowest since the fourth quarter of 2005.
It would seem that most conditions are ripe for the rate of home construction to continue to accelerate going forward. This is encouraging for future the non-residential construction. Historically non-residential construction lags home construction. This makes sense; schools, retail, professional services and other infrastructure follow the construction of a new home subdivision.
At Gerdau, we monitor the US housing market because historically new home construction has preceded non-residential construction (NRC), and therefore is an excellent barometer to foresee future demand for NRC.