The Mortgage Corner
Pending home sales hit a 9-year high in April, according to data released last Friday by the National Association of Realtors. This is an early sign that housing construction and sales will come out of their winter hibernation, as consumers begin to spend again.
The NAR’s Pending Home Sales Index rose for the fourth consecutive month in April, increasing 3.4 percent to 112.4 – a 14 percent increase over April 2014 and the largest annual increase since September of 2012. The index is now at its highest level since May of 2006.
NAR chief economist Lawrence Yun said that there have been steady gains in contract activity each month this year, indicating strong buyer demand. “Realtors are saying foot traffic remains elevated this spring despite limited – and in some cases severe – inventory shortages in many metro areas,” he said. “Homeowners looking to sell this spring appear to be in the driver’s seat, as there are more buyers competing for a limited number of homes available for sale. As a result, home prices are up and accelerating in many markets.”
That has to be why construction spending is surging, as I predicted last week. Higher pending sales mean increased demand for new homes with too few existing homes available for sale at reasonable prices.
The U.S. Census Bureau of the Department of Commerce just announced that construction spending during April 2015 was up at a seasonally adjusted annual rate of $1,006.1 billion, 2.2 percent above the revised March estimate of $984.0 billion, and 4.8 percent above the year ago estimate of $960.3 billion.
Private non-residential spending looks very strong, up 3.1 percent and led by the power and office sectors. Public spending is also strong with a large gain for highways & streets, and a surge in educational building. Though the gain in public spending came entirely from the state and local governments as federal construction spending declined for a second straight month.
And personal incomes are beginning to show some life, which may be the underlying reason consumers are feeling more confident. Personal income increased $59.4 billion, or 0.4 percent in April, according to the Bureau of Economic Analysis, though personal consumption expenditures (PCE) decreased just $2.6 billion, or less than 0.1 percent. But we see spending also increasing with increased consumer confidence in future prospects, according to the confidence surveys.
The Conference Board’s Consumer Confidence gauge is rising to pre-recession highs; another reason why both new and existing-home sales have been stronger of late. The consumer confidence report for May came in at 95.4, slightly higher than April. Income expectations are up slightly and buying plans are higher across the board, including for autos, homes, and especially for appliances.
The U. of Michigan’s consumer sentiment report also showed strength, ending May at 90.7 vs the mid-month flash of 88.6. The implied reading for the last two weeks of the month is about 93 which, though down from April's 95.9 and January's peak over 98, is still very solid, according to Econoday.
Harlan Green © 2015
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