October 2014 Housing Report – Rise In Sales, Fall In Starts
Last month the housing market’s shining star was the apartment rental. With a rise in renters, builders focused on building them. In October though, a decline in construction started on apartments contributed to the drop in housing starts. Starts fell 2.8% in October to an annualized pace of 1.01 million from 1.04 million in September. Economists had expected the overall starts rate to tick up to 1.03 million. The pace of October’s overall construction though was up 7.8% from the year-earlier period.
Existing-home sales rose in October for the second straight month and are now above year-over-year levels for the first time in a year. Existing-home sales rose 1.5 percent to a seasonally adjusted annual rate of 5.26 million in October from an upwardly-revised 5.18 million in September. Sales are at their highest annual pace since September 2013 and are now above year-over-year levels (2.5 percent from last October) for the first time since last October.
Lawrence Yun, NAR chief economist comments on the housing market activity this year:
Sales activity in October reached its highest annual pace of the year as buyers continue to be encouraged by interest rates at lows not seen since last summer, improving levels of inventory and stabilizing price growth. Furthermore, the job market has shown continued strength in the past six months. This bodes well for solid demand to close out the year and the likelihood of additional months of year-over-year sales increases.
Michael Dolega, senior economist at TD Economics weighs in:
While we don’t expect housing to improve at breakneck speed, we continue to feel positive about the prospects for housing market with a continued gradual recovery the most likely outcome. The pace of homebuilding remains well shy of demographic fundamentals. With mortgage rates likely to remain favorable, this gap should close over the medium term as the labor market heals.
Looking forward, there’s hopeful news in the starts department. The annual pace of permits for new construction rose 4.8% in October to 1.08 million — the highest rate since June 2008 — from 1.03 million in September. The permits rate rose 1.4% for single-family homes, and 8% for apartments. Builders are optimistic about the single-family homes market. A buffer job market could be why. The home-builder confidence index reached its second highest monthly reading in nine years.
But economists say that builder confidence is sort of misleading and doesn’t reflect the industry’s current state.
To that end Yun says, “The growth in housing supply this year will likely prevent the drastic sales slowdown and coinciding spike in home prices we saw last winter due to low inventory.” He adds, “However, more housing starts are needed to increase supply, meet current demand and keep price growth in check.”