Higher Home Prices Driving Construction

The Mortgage Corner

CoreLogic just reported home prices nationwide, including distressed sales, increased 10.2 percent on a year-over-year basis in February 2013 over February 2012. And it is boosting construction, as for sale inventories are barely increasing in the new selling season. This price change represents the biggest year-over-year increase since March 2006 and the 12th consecutive monthly increase in home prices nationally.

Graph: Calculated Risk

“The rebound in prices is heavily driven by western states. Eight of the top ten highest appreciating large markets are in California, with Phoenix and Las Vegas rounding out the list,” said Dr. Mark Fleming, chief economist for CoreLogic.

And the Department of Commerce U.S. Census Bureau announced that construction spending during February 2013 rose 1.2 percent above the revised January estimate of $874.8 billion, and is 7.9 percent above the February 2012 estimate of $820.7 billion.

Graph: Calculated Risk

This is huge, and will boost employment and Gross Domestic Product growth. Though private residential spending is 55 percent below the peak in early 2006 at the height of the housing bubble, it is up 36 percent from the post-bubble low. Non-residential spending is 25 percent below the peak in January 2008, and up about 37 percent from the recent low, said Calculated Risk.

Meanwhile housing inventories have increased 6.5 percent through April 1 (red line in graph), reports Department of Numbers, a housing tracking service, though not enough to prevent housing prices from soaring. For 2011 and 2012, inventory only increased about 5 percent at the peak and then declined for the remainder of the year.

Graph: Calculated Risk

Let us hope this continues as the so-called shadow inventory of homes in default continue to shrink, thus increasing the housing supply available for sale. According to Lender Processing Services (LPS), the inventory of homes in default decreased in February compared to January and declined about 6.5 percent year-over-year. Also the percent of loans in the foreclosure process declined further in February and were down significantly over the last year.

LPS also reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) decreased to 6.80 percent from 7.03 percent in January. Note: the normal rate for delinquencies is around 4.5 to 5 percent, as we’ve said in past columns.

Construction employment is coming back, in other words. The construction industry employed some 7.5 million workers in 2006, whereas it is now 5.8 million, according to the Associated General Contractors of America. So we know it will contribute significantly to the 3 million shortfall in payroll jobs still to be made up this year and next to bring us back to normal employment levels as housing and the real estate market in general continue to recover.

Harlan Green © 2013

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