Housing Moves Towards ‘Healthy Equilibrium’

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The housing market is finding its center again, showing signs of greater balance, according to the National Housing Trend Report.  The analysis finds year-over-year trends revealing strong gains in median list prices and declines in days on the market.

“Our September data on inventory counts, median list prices, and median time on market has shown another month of steady leveling, but the recovery certainly remains uneven in some pockets,” said Errol Samuelson.  “Some of the more industrial-based markets clearly continue to struggle, yet others are showing significant price gains over this time last year.  While we continue to see a trend of a healthy market balance, imminent economic factors could pose a significant threat to these improvements.

The report highlights some of the following progress on four main indicators for the housing market:

  • List prices:  The median list price for homes in September dropped slightly but remained 6.4 percent higher than a year ago.  More than 20 percent of the 146 markets that was analyzed covers posted year-over-year gains in listing prices of 12 percent or more.
  • Home sales:  Sales of single-family homes, condos, and townhouses fell 1.68 percent in September, after six consecutive months of gradual rises.
  • Inventory levels:  Inventories were 2.04 percent less in September than year ago levels-signaling a greater balance between supply and demand.
  • Days on market:  The median age of inventory increased from 92 days to 93 days in September.  However, it has fallen by 10.58 percent in the past year, which indicates that homes are selling more quickly.

Housing Recovery Picks Up Steam

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With home prices and household formations rising and household balance sheets healing, the ongoing housing recovery is expected to gain momentum next year as several challenges remain.

Helping spur the housing rebound was a double-digit increase in home prices over the past year, driven in part by tight inventories of new and existing homes for sale and gradual gains in employment.

Another bright spot is rising household formations that were delayed during the downturn as college graduates and young professionals were forced to move back in with their parents.  At the height of the housing boom, the U.S was producing 1.4 million additional households every year.  That figure plunged to 500,000 during the depth of the recession and today is now back up to 700,000.

Single-family production is expected to rise 17 percent this year to 629,000 units, jump an additional 31 percent next year to 826,000 units and surpass 1 million mark in 2015.

How Did Homeowners Use the Energy Tax Credits?

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In 2005, Congress established a number of energy-efficiency tax incentives related to housing.  These policies include the tax code section 45L credit for construction of energy-efficient homes, the 25C credit for retrofitting homes, and the 25D credit for the installation of power production property in new and existing homes.

The 25C credit is available for existing homes and homeowners and may receive a tax credit worth 10% of the cost of energy-efficient improvements up to $500.  This tax credit expires December 31, 2013.

Homeowners that have taken advantage of this tax credit spent $7.8 billion on energy-efficient windows by 2.2 million homeowners.  Energy efficient natural gas, propane, and oil powered water heaters and furnaces were second, with $5.3 billion in qualified expenditures by almost 1.4 million taxpayers.  While 2.1 million taxpayers spent $3.5 billion on upgrading insulation in their homes.

Mortgage Rates Move Lower as Fed Delays Taper

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Mortgage rates inched lower this week, following the Federal Reserve’s recent announcement that it would delay tapering its bond buying program. Mortgage rates have climbed more than one percentage point since May when speculation began that the Fed would start winding down its $85 billion per month bond buying program, which had helped keep mortgage rates low.

“Mortgage rates drifted downwards this week amid signs of a weakening economic recovery,” says Frank Nothaft, Freddie Mac’s chief economist. “This, in part, was why the Federal Reserve chose to maintain its MBS and bond-buying program. [The Fed] also cited the tightening of financial conditions observed in recent months, which in the case of the housing market means the rise in mortgage rates since May.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Sept. 19:

  • 30-year      fixed-rate mortgages: averaged 4.50 percent, with an average 0.7 point, dropping from last week’s 4.57 percent average. Last year at this time,   30-year fixed-rate mortgage averaged 3.49 percent.
  • 15-year      fixed-rate mortgages: averaged 3.54 percent, with an average 0.7 point, dropping from last week’s 3.59 percent average. Last year at this time, 15 year rates averaged 2.77 percent.
  • 5-year      adjustable-rate mortgages: averaged 3.11 percent, with an average 0.5 point, dropping from last week’s 3.22 percent average. A year ago, 5-year ARMs    averaged 2.76 percent.
  • 1-year      ARMs: averaged      2.65 percent, with an average 0.4 point, dropping from last week’s 2.67 percent average. A year ago, 1-year ARMs averaged 2.61 percent.

Producer Prices in August – Wood Products Prices Mixed, Gypsum Threatens Again

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The Bureau of Labor Statistics (BLS) released the Producer Price Indexes (PPI) for August. Producer prices for finished goods rose 0.3% in August driven by increases in food (0.6%) and energy (0.8%) prices. Excluding food and energy, the core index was flat.

The PPI for softwood lumber rose 2.6% from July to August after declining 2.3% from June to July. Strong demand from China helped the rebound. Offshore markets have gained favor as recent price declines have triggered the return of the export tax on Canadian shipments to the US.

OSB prices declined 9.5% in August, bringing them to their lowest level since the run-up that began in early 2012, but leaving them still 34.6% higher than that low point.

Gypsum prices declined slightly in July and August, a two month decline of 1.8%, but the prospect of price relief was short-lived. Prices are currently at 92.6% of their peak housing boom levels and at least one major producer, National Gypsum, has announced a 20% price hike effective with 2014 shipments. This price increase is eerily similar to the hikes in early 2012 and 2013.

OSHA’s Proposed Silica Rule Raises Concerns

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A coalition of construction industry groups is concerned about a proposed rule from the Occupational Safety and Health Administration (OSHA) that’s intended to protect workers from inhaling dust containing silica, created by activities such as cutting brick or block, and sawing, grinding or drilling concrete.

“We need practical, science-based solutions that protect workers in all facets of construction,” said Rick Judson, chairman of the National Association of Home Builders (NAHB).  “Unfortunately, OSHA’s initial announcement about this proposed rule indicates we are not there yet.”

Announced August 23 in a press conference that laid out few details, the proposed rule seems to call for one-size-fits-all measures that contradict existing safety and quality assurance practices for different types of contractors.

For instance, spraying water to reduce dust may be practical in some construction projects, but using it inside a home while cutting granite counters can cause mold.  In cold weather, spraying water while cutting asphalt roof shingles could cause ice to form on the slanted surface, endangering workers.  Ventilation and dust-capture systems can inhibit the safe operation of tools.  And if prescribed measures are not practicable, contractors might be forced to eliminate products with silica altogether, including concrete, brick, granite, and other common construction materials.

Independent studies have estimated costs for construction industry compliance will exceed $1 billion per year.

NAHB is part of the Construction Industry Safety Coalition, which is seeking a feasible and cost-effective crystalline silica regulation that improves safety and health protection measures for workers.  The coalition represents thousands of employers working to protect hundreds of thousand workers in home buildings, road repair, heavy industrial production, specialty trades and materials supply.

It was formed to encourage OSHA to develop better choices for compliance with the construction-specific silica rule: alternatives that also address costs, consistency with existing federal regulations and do not overly burden small businesses.

Vapor Barriers and Cellulose Insulation

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Fiberlite Technologies does not recommend the use of an interior vapor barrier with our wall cavity spray products.  A vapor barrier will greatly inhibit the air movement within the cavity space which in turn regulates the temperature within the cavity.

Convective air cycles occur when an insulation product does not restrict air movement within or around the wall cavity, which allows for greater temperature variations that lead to moisture formation on wall surfaces.  When insulation is improperly installed, such as gaps between the insulation and wall surface, this will promote the convective air cycle and will greatly increase the conditions for moisture to form on wall surfaces.

When cellulose insulation is spray applied into the wall cavities, a monolithic bond with the frame is formed and prevents the convective air cycle within the cavity.  Thus the need for a vapor barrier is eliminated.

If you have a building official who insists that you use a vapor barrier with our products, feel free to have them contact us.

Existing-Home Sales Spike in July

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According to the National Association of Realtors®, existing-home sales rose strongly in July.  Total existing-home sales, which are completed transactions that include single-family homes, townhouses, condominiums and co-ops, increased 6.5 percent.

Lawrence Yun, National Association of Realtors (NAR) chief economist, said changes in affordability are impacting the market.  “Mortgage interest rates are at the highest level in two years, pushing some buyers off the sidelines,” he said.  “The initial rise in interest rates provides strong incentive for closing deals.  However, further rate increase will diminish the pool of eligible buyers.”

Despite higher mortgage interest rates, Yun identified compensating factors that can sustain a continued recovery.  “Although housing affordability conditions will become less attractive, jobs are being added to the economy, and mortgage underwriting standards should normalize over time from current stringent conditions as default rates fall.”

According to Freddie Mac, the national average commitment rate for 30-year, conventional, fixed rate mortgage rose to 4.37 percent in July from 4.07 percent in June, and is the highest since July 2011 when it was 4.55 percent; the rate was 3.55 percent in July 2012.

Total housing inventory at the end of July rose 5.6 percent to 2.28 million existing homes available for sale, which represents 5.1 month supply at the current sales pace.  Listed inventory is 5.0 percent below a year ago, when there was a 6.3 month supply.

Existing home sales in the Midwest rose 5.8 percent in July to a pace of 1.28 million, and are 20.8 percent higher than a year ago.  The median price in the Midwest as $168,300, which is 9.5 percent above July 2012.

The Housing Supply is More Energy Efficient

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Energy efficient home features are becoming nearly standard practice among some homebuilders nowadays.  Many builders see this as a way to compete against existing homes, boasting it as a way for homeowners to save money on utility bills.

National Association of Home Builders (NAHB) survey revealed that the number one priority for buyers is energy efficiency.  Homeowners are stipulating energy-efficient HVAC and appliances and more insulation.

With energy costs on the rise across the U.S., the energy costs to operate a home can be very valuable information to the potential buyer.  Homes that are more energy efficient could sell faster and may increase the value of a home.

Homeownership is a Top Priority

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Americans overwhelmingly believe owning a home is a good financial decision and a majority of renters say homeownership is one of their highest priorities for the future.  Renters are thinking more about purchasing a home now than in past years, while the number of people say they prefer to rent has declined.

Americans consistently realize the many benefits homeownership provides to communities, families, and the nation’s economy.  Due to high housing affordability and today’s interest rates, it makes sense for people to consider homeownership over renting.  In many parts of the country, it is cheaper to own a home than to rent one.  It is no surprise that renters recognize that owning a home offers tremendous long-term benefits and is an investment in their future.

The perceived obstacles to homeownership have remained unchanged over the years; low wages, student loan debt, and little savings for a down payment and closing costs continue to make it difficult for many to become homeowners.