housing chartbook: 2016 half-time report

This report is available on wellsfargo.com/economics and on Bloomberg WFRE.

December 05, 2016

Economics Group

Rising Mortgage Rates Are the Latest Challenge for Housing The financial markets have responded positively to president-elect Donald Trump’s surprising victory. Stock prices have rallied higher on expectations that tax cuts, increased infrastructure spending and reduced regulation will boost long-term economic growth. Interest rates have also risen, however, as investors are now anticipating slightly higher inflation, larger budget deficits and, with a stronger-than-previously expected economic outlook, higher opportunity costs. The higher interest rate environment that we now expect likely will create challenges for the still-slowly recovering housing market. Housing affordability, while near historic highs, has been falling as home prices have risen much faster than incomes in recent years. The sudden rise in conventional mortgage rates will reduce affordability further in coming months. Moreover, the abrupt strengthening in the dollar, particularly since the presidential election, will further reduce sales to international buyers, which had already slowed considerably in many East Coast markets.

The most recent housing data remain encouraging. The big surprise this past month was the huge 25.5 percent surge in October housing starts, which showed single-family starts rising 10.7 percent and multi-family starts surging 68.8 percent (Figure 2). We believe than much of October’s outsized gain results from milder-than-usual weather, which has allowed more construction to begin. Starts are now running well ahead of permits, which are less influenced by weather distortions. Within starts, we detect a subtle shift toward less expensive homes. Builders, particularly in the South, are focusing more intently on homes priced at or below the median new home sales price, which is currently near a historic premium relative to existing homes.

Builders remain fairly optimistic, particularly in the West and South, where sales remain strong and inventories are low. The new administration may eventually find a way to ease up on historically restrictive mortgage rules. Such a move, however, will take time.

Figure 1

Figure 2

Source: FHLMC, Federal Reserve Board, U.S. Dept. of Commerce and Wells Fargo Securities

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6%

7%

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1%

2%

3%

4%

5%

6%

7%

04 05 06 07 08 09 10 11 12 13 14 15 16

Mortgage Rate vs. 10-Year Treasury YieldPercent

Conv. 30-Year Fixed Mortg. Rate: Nov-30 @ 4.08%

10-Year Yield: Nov-30 @ 2.34%

0

120

240

360

480

600

0

400

800

1,200

1,600

2,000

87 89 91 93 95 97 99 01 03 05 07 09 11 13 15

Single & Multifamily Housing StartsSAAR, In Thousands, 3-Month Moving Average

Single-Family Housing Starts: Oct @ 793K (Left Axis)Multifamily Housing Starts: Oct @ 388K (Right Axis)

Special Commentary

Mark Vitner, Senior Economist [email protected] ● (704) 410-3277

Misa Batcheller, Economic Analyst [email protected] ● (704) 410-3060

2017 U.S. Housing Market Outlook

The most recent housing data remain encouraging.

Housing affordability has been falling as home prices have risen much faster than incomes.

mailto:[email protected]

mailto:[email protected]

2017 U.S. Housing Market Outlook WELLS FARGO SECURITIES December 05, 2016 ECONOMICS GROUP

2

A Slightly More Upbeat Housing Forecast October’s strong pickup in housing starts caused us to slightly boost our 2016 housing starts forecast and we have also taken the 2017 and 2018 numbers higher. We look for housing starts to average a 1.17 million unit pace in 2017 and a 1.22 million unit pace in 2018 (Figure 3). The more upbeat outlook mostly reflects base effects, however, as well as a shift toward lower-priced homebuilding. As a result, our residential construction spending forecast has been less impacted.

Our cautious forecast is largely due to the faster rise in long-term interest rates, which has taken place since the presidential election, and slightly higher interest rate environment that we expect over the next couple of years. The return to a more normal interest rate outlook is particularly perplexing to the housing sector because we are starting from such unusually low levels. A 50 basis point rise in conventional mortgage rates, coupled with a 4 percent rise in home prices, pushed the monthly principal and interest payments up roughly 10.5 percent on the median priced existing home. That increase is quite a lot for households to absorb, as they are are seeing wages and salaries rise about 4.5 percent a year. If interest rates were higher, buyers could avoid much of the immediate hit from rising rates by shifting to an adjustable rate loan. Such a strategy yields little savings at today’s still-low rate and is not the route many would likely take when they expect interest rates to rise. Shifting to less expensive homes is also a less viable option in this market because inventories of both new and existing homes are so low.

With 10 months of data in the books, we have a good idea on how home sales and new home construction will finish in 2016. Building activity tends to slow during the winter months, although November’s mild weather may have allowed more activity to occur and buyers may have moved ahead of interest rate hikes. The recent spike in mortgage rates has already caused refinancing activity to fall off sharply and will likely impact sales in coming months. We do not look for a repeat of the taper tantrum in 2015, when an even more abrupt and sharper rise in mortgage rates led to a surge in sales cancelations that set back the housing recovery.

The end of the ultra-low interest rates era has pushed the value of the dollar higher against the currencies of many key U.S. trading partners, making it more costly for foreign buyers to purchase homes in the United States (Figure 4). The pullback of foreign buyers was already apparent in New York City and Miami but is likely to become increasingly evident along the West Coast and parts of the South, where foreign buying has pushed prices higher than the underlying fundamentals would justify. When coupled with increased construction, we expect home price appreciation to moderate, with the S&P CoreLogic Case-Shiller 10-City index rising 4.4 percent next year, after rising an estimated 4.5 percent in 2016. The median price of a new home is expected to decelerate even more dramatically, with prices climbing an estimated 3.6 percent this year and 3.2 percent in 2017. The moderation in new home prices largely results from the changing mix of construction, with building activity shifting to less costly suburban locations.

Figure 3

Figure 4

Source: U.S. Department of Commerce, Bloomberg LP and Wells Fargo Securities

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80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18

Thousands

Housing StartsMillions of Units

Multifamily Starts

Multifamily Forecast

Single-Family Starts

Single-Family Forecast

Forecast

0.7%

-0.9%

22.3%

-12.3%

7.3%

19.7%

1.2%

-30% -20% -10% 0% 10% 20% 30% 40%

South Korea

Germany

U.K.

Japan

China

Mexico

Canada

U.S. Dollar Appreciation vs. Top Export DestinationsTop 7 Trading Partners, Year-over-Year Percent Change

Nov-16

U.S.

Exports

Less

More

The recent spike in mortgage rates has already caused refinancing activity to fall off sharply.

We look for housing starts to average a 1.17 million unit pace in 2017 and a 1.22 million unit pace in 2018.


3

2010

2011

2012

2013

2014

2015

2016

2017

2018

Real GDP,

Perc

ent

Change

2.5

1.6

2.2

1.7

2.4

2.6

1.5

2.1

2.1

Resid

ential In

vestm

ent,

Perc

ent

Change

-2.5

0.5

13.5

11.9

3.5

11.7

4.8

3.8

4.8

Nonfa

rm E

mplo

ym

ent,

Perc

ent

Change

-0.7

1.2

1.7

1.6

1.9

2.1

1.7

1.4

1.2

Unem

plo

ym

ent

Rate

9.6

8.9

8.1

7.4

6.2

5.3

4.9

4.7

4.5

Hom

e C

onstr

uction

Tota

l Housin

g S

tart

s,

in T

housands

586.9

608.8

780.6

924.9

1,0

03.3

1,1

11.8

1,1

70.0

1,2

15.0

1,2

50.0

Sin

gle

-Fam

ily S

tart

s,

in T

housands

471.1

430.5

535.3

617.7

647.9

714.5

780.0

830.0

870.0

Multifam

ily S

tart

s,

in T

housands

115.8

178.3

245.3

307.2

355.4

397.3

390.0

385.0

380.0

Hom

e S

ale

s

New

Hom

e S

ale

s,

Sin

gle

-Fam

ily,

in T

housands

322.0

305.0

369.0

429.0

437.0

501.0

565.0

600.0

630.0

Tota

l Exis

ting H

om

e S

ale

s,

in T

housands

4,1

90.0

4,2

60.0

4,6

60.0

5,0

90.0

4,9

40.0

5,2

50.0

5,4

10.0

5,5

40.0

5,6

50.0

Exis

ting S

ingle

-Fam

ily H

om

e S

ale

s,

in T

housands

3,7

08.0

3,7

87.0

4,1

28.0

4,4

84.0

4,3

44.0

4,6

46.0

4,7

95.0

4,9

15.0

5,0

20.0

Exis

ting C

ondom

iniu

m &

Tow

nhouse S

ale

s,

in T

housands

474.0

477.0

528.0

603.0

591.0

608.0

615.0

625.0

630.0

Hom

e P

rices

Media

n N

ew

Hom

e,

$ T

housands

221.8

227.2

245.2

268.9

282.8

296.4

307.0

316.8

326.2

Perc

ent

Change

2.4

2.4

7.9

9.7

5.2

4.8

3.6

3.2

3.0

Media

n E

xis

ting H

om

e,

$ T

housands

172.9

166.1

176.8

197.1

208.3

222.4

233.1

243.2

252.6

Perc

ent

Change

0.2

-3.9

6.4

11.5

5.7

6.8

4.8

4.3

3.9

FHFA P

urc

hase O

nly

Index,

Perc

ent

Change

-3.0

-4.1

3.1

7.3

5.4

5.6

5.5

4.6

4.2

S&P C

ase-Shiller

C-10 H

om

e P

rice I

ndex,

Perc

ent

Change

2.1

-3.5

0.3

11.7

7.9

4.6

4.5

4.4

4.2

Inte

rest

Rate

s -

Annual Avera

ges

Federa

l Funds T

arg

et

Rate

0.2

50.2

50.2

50.2

50.2

50.2

70.5

61.0

01.5

0

Prim

e R

ate

3.2

53.2

53.2

53.2

53.2

53.2

73.5

64.0

04.5

0

Ten-Year

Tre

asury

Note

3.2

22.7

81.8

02.3

52.5

42.1

41.7

92.3

72.5

6

Conventional 30-Year

Fix

ed R

ate

, Com

mitm

ent

Rate

4.6

94.4

63.6

63.9

84.1

73.8

53.7

34.2

94.4

4

One-Year

ARM

, Eff

ective R

ate

, Com

mitm

ent

Rate

3.7

93.0

32.6

92.6

12.4

42.5

32.7

02.9

03.0

0

Fore

cast

as o

f: D

ecem

ber

5,

2016

Sourc

e:

U.S

. D

ept.

of

Com

merc

e,

U.S

. D

ept.

of

Labor,

FR

B,

FH

FA

, FH

LM

C,

National A

ssocia

tion o

f R

ealtors

, S

&P,

Wells F

arg

o S

ecuri

ties

Na

tio

na

l H

ou

sin

g O

utl

oo

k

Forecast


4

Mortgages

Long-term mortgage rates have continued to march higher in the aftermath the U.S. election. According to Freddie Mac, the average 30-year fixed mortgage rate has risen roughly half a percentage point since the election to 4.08 percent during the week ended Nov. 30, marking the highest rate since July 2015.

Mortgage purchase applications also spiked during the week following the election, rising 18.8 percent as the threat of even higher rates likely encouraged some potential homebuyers to lock in a mortgage. However, mortgage applications for refinancing, which are more highly sensitive to interest rates, continued to falter, reporting an eighth consecutive decline for the week ended Nov. 25.

Source: Mortgage Bankers Association, FHLMC, Federal

Reserve Board and Wells Fargo Securities

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7%

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1%

2%

3%

4%

5%

6%

7%

04 05 06 07 08 09 10 11 12 13 14 15 16

Mortgage Rate vs. 10-Year Treasury YieldPercent

Conv. 30-Year Fixed Mortg. Rate: Nov-30 @ 4.08%

10-Year Yield: Nov-30 @ 2.34%

0

2,000

4,000

6,000

8,000

10,000

12,000

0

2,000

4,000

6,000

8,000

10,000

12,000

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Mortgage Applications for Refinancing4-Week Moving Average, Seasonally Adjusted, Index 1990 =100

Weekly Figure: Nov-25 @ 1,470Down from 1,754 on Nov-184-Week Average: Nov-25 @ 1,7674-Week Average Up 6.1% from Same Period Last Year

0

100

200

300

400

500

0

100

200

300

400

500

92 94 96 98 00 02 04 06 08 10 12 14 16

Mortgage Applications for PurchaseSeasonally Adjusted Index, 1990=100

Weekly Figure: Nov-25 @ 233.6

Down From: Nov-25 @ 234.1

8-Week Average Up 6.7% From Same Period Last Year

Mort. Appl.: 8-Week Average: Nov-25 @ 216.2

60

80

100

120

140

160

180

60

80

100

120

140

160

180

11 12 13 14 15 16

MBA Mortgage Credit Availability IndexIndex, Mar 2012 = 100

MCAI: Oct @ 171.3

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

Subprime GSE-eligible

Gov't QM non-jumbo,

non-GSE

QM jumbo Non-QMjumbo

Non-QMnon-jumbo

Mortgage Supply and DemandQ4 2016, 4-Quarter Mov. Avg.

Net Percent of Banks Tightening Standards

Net Percent of Banks Reporting Stronger Demand


5

Single-Family Construction

Single-family housing starts started off the fourth quarter on a solid footing, rising 10.7 percent in October. The reported strength in single-family construction coincides with generally positive home builder sentiment. The NAHB/Wells Fargo Housing Market Index has averaged more than 60 over the past six months and builders report strong demand across much of the country.

While stronger housing starts are encouraging, starts are now running well ahead of permits. Milder weather may have boosted starts in recent months. On a three-month moving average basis, single-family housing permits are roughly 6 percent below starts, suggesting some payback in starts in the coming months.

Source: U.S. Department of Commerce, National Association of Home Builders and Wells Fargo Securities

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

0

10

20

30

40

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60

70

80

90

100

90 92 94 96 98 00 02 04 06 08 10 12 14 16

Builder Confidence & Single-Family StartsDiffusion Index; Starts SAAR 3-MMA in Millions

NAHB Housing Market Index: Nov @ 63.0 (Left Axis)Single-Family Housing Starts: Oct @ 793K (Right Axis)

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

87 89 91 93 95 97 99 01 03 05 07 09 11 13 15

Single-Family Housing Completions Seasonally Adjusted Annual Rate, In Millions

Single-Family Housing Completions: Oct @ 749K

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

90 92 94 96 98 00 02 04 06 08 10 12 14 16

Thousands

Single-Family Housing Starts vs. Building Permits SAAR, In Millions, 3-Month Moving Average

Single-Family Housing Starts: Oct @ 793K

Single-Family Building Permits: Oct @ 747K

0 5 10 15 20 25 30 35

Los Angeles, CA

Seattle, WA

Raleigh, NC

New York, NY-NJ-PA

Denver, CO

Tampa, FL

Nashville, TN

Washington, DC-VA-MD-WV

Charlotte, NC-SC

Austin, TX

Orlando, FL

Phoenix, AZ

Atlanta, GA

Dallas, TX

Houston, TX

Thousands

Single-Family Housing Permits by MSATotal Number of Permits in Thousands, YTD October 2016, NSA

000

300

600

900

1,200

1,500

1,800

2,100

2,400

000

300

600

900

1,200

1,500

1,800

2,100

2,400

85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15

Single-Family Housing Starts Annual Average of SAAR

SF Housing Starts: 2016 @ 768K 2016 is YTD Average

of SAAR


6

Multifamily Construction

Multifamily construction activity picked back up in October, following a sizable decline in September. Apartment completions have exceeded demand for the past six quarters, but the margin has narrowed. Rent increases have also eased somewhat.

The bulk of multifamily building is in the South, which has accounted for more than 40 percent of the nation’s multifamily starts over the past 10 months. Apartment construction has been particularly strong in the Dallas, Atlanta and Miami metropolitan areas.

While multifamily starts appear to have topped out, construction will likely remain solid as permits are running a good bit ahead of starts.

Source: U.S. Dept. of Commerce, Reis, Inc., American Institute of Architects and Wells Fargo Securities

0

100

200

300

400

500

600

0

100

200

300

400

500

600

90 92 94 96 98 00 02 04 06 08 10 12 14 16

Multifamily Housing Starts vs. Building Permits SAAR, In Thousands, 3-Month Moving Average

Multifamily Housing Starts: Oct @ 388K

Multifamily Building Permits: Oct @ 455K

0

20

40

60

80

100

0

100

200

300

400

500

87 89 91 93 95 97 99 01 03 05 07 09 11 13 15

Multifamily Housing StartsSAAR, In Thousands, 3-Month Moving Average

5+ Units: Oct @ 374K (Left Axis)

2-4 Units: Oct @ 14K (Right Axis)

0 5 10 15 20 25 30

Boston, MA-NH

San Diego, CA

Austin, TX

San Francisco, CA

Phoenix, AZ

Denver, CO

Houston, TX

Washington, DC-VA-MD-WV

Chicago, IL-IN-WI

Miami, FL

Atlanta, GA

Seattle, WA

Los Angeles, CA

Dallas, TX

New York, NY-NJ-PA

Thousands

Multifamily Housing Permits by MSATotal Number of Permits in Thousands, YTD October 2016, NSA

-75

-50

-25

0

25

50

75

100

2%

3%

4%

5%

6%

7%

8%

9%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Apartment Supply & DemandPercent, Thousands of Units

Apartment Net Completions: Q3 @ 38,010 Units (Right Axis)

Apartment Net Absorption: Q3 @ 37,734 Units (Right Axis)

Apartment Vacancy Rate: Q3 @ 4.4% (Left Axis)

25

30

35

40

45

50

55

60

65

25

30

35

40

45

50

55

60

65

96 98 00 02 04 06 08 10 12 14 16

Residential Architecture Billings 3-Month Moving Average, Seasonally Adjusted

Residential Billings: Oct @ 51.2


7

Buying Conditions

Various measures of buying plans suggest that home sales may run into a soft patch. While the proportion of consumers in the University of Michigan’s Consumer Sentiment Survey stating that now is a good time to buy a home inched up in November, it remains well below the highs hit earlier this year. Most of the drop has been due to higher home prices, which have reduced affordability. Now that mortgage rates have risen, we expect the proportion of consumers that believe now is a good time to buy a home to fall a bit further.

Home price appreciation has moderated and starts of more modestly priced new homes have risen in recent months, which should offset some of the drag from rising mortgage rates.

Source: University of Michigan, National Association of Realtors, FHLMC, S&P, Federal Reserve Board, U.S. Dept. of Commerce and Wells Fargo Securities

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2.2%

2.4%

2.6%

3.0%

3.2%

3.4%

3.6%

3.8%

4.0%

4.2%

Jan-16 Mar-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16

Mortgage Rate vs. 10-Year Treasury Yield30-Year Fixed Mortgage Rate, Percent

Conv. 30-Year Fixed Mortg. Rate: Nov-30 @ 4.08% (Left Axis)

10-Year Yield: Nov-30 @ 2.34% (Right Axis)

0

25

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75

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175

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25

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125

150

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00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Good Time to Buy vs. Good Time to SellUniversity of Michigan Consumer Sentiment Survey

Good Time to Buy a House: Nov @ 149.0Good Time to Sell a House: Nov @ 123.0

2%

4%

6%

8%

10%

12%

14%

10%

13%

16%

19%

22%

25%

28%

90 92 94 96 98 00 02 04 06 08 10 12 14 16

Mortgage Payment vs. Mortgage RatePrincipal & Interest Payment as a Percent of Income

6 Month Moving Average: Sep @ 15.4% (Left Axis)

Mortgage Payment as Percent of Income: Sep @ 14.9% (Left Axis)

30-Yr. Conventional Mortg. Rate: Nov @ 3.77% (Right Axis)

-24%

-18%

-12%

-6%

0%

6%

12%

18%

24%

30%

-24%

-18%

-12%

-6%

0%

6%

12%

18%

24%

30%

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Home Prices vs. Wages and SalariesYear-over-Year Percentage Change

Wage & Salaries (3-MMA): Oct @ 4.4%

S&P/Case-Shiller Composite-20: Sep @ 5.1%

National HPI: Sep @ 5.5%

80

100

120

140

160

180

200

220

80

100

120

140

160

180

200

220

95 97 99 01 03 05 07 09 11 13 15

Housing Affordability IndexNational Association of Realtors, Base = 100

Housing Affordability Index: Sep @ 167.5

6-Month Moving Average: Sep @ 162.6


8

New Home Sales

New home sales fell 1.9 percent in October to an annual rate of 563,000 homes. Sales for the prior three months were also revised lower. The slower pace raises concerns as to how consumers will respond to rising mortgage rates, which will further challenge affordability and the ability of potential borrowers to qualify.

A positive trend in the underlying data has been the slight pickup in inventories. The inventory of for-sale homes has risen over the past three months, rising to 248,000 homes in October.

New home sales remain up a solid 12.7 percent for the first 10 months of the year relative to the same period a year ago. We expect new home sales to register a 12.8 percent gain for 2016 as a whole and rise another 6 percent in 2017.

Source: U.S. Department of Commerce, FHLMC and Wells Fargo Securities

0

250

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1,000

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1,500

1,750

3%

4%

5%

6%

7%

8%

9%

10%

93 95 97 99 01 03 05 07 09 11 13 15 17

New Home Sales vs. Mortgage RatesSeasonally Adjusted Annual Rate, In Thousands

Mortgage Rate: Nov @ 3.8% (Left Axis)

New Home Sales: Oct @ 563,000 (Right Axis)

2

4

6

8

10

12

14

2

4

6

8

10

12

14

85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17

Months' Supply of New Homes Seasonally Adjusted

Months' Supply: Oct @ 5.2

100

150

200

250

300

350

400

450

500

550

600

100

150

200

250

300

350

400

450

500

550

600

89 91 93 95 97 99 01 03 05 07 09 11 13 15

Inventory of New Homes for SaleNon-Seasonally Adjusted, In Thousands

Inventory: Oct @ 248,000

0

20

40

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80

100

120

140

160

180

0

20

40

60

80

100

120

140

160

180

97 99 01 03 05 07 09 11 13 15

New Home SalesNew Homes Sold During Month, Index 2002=100, 3-MMA

South: Oct @ 82.5

Midwest: Oct @ 37.6

West: Oct @ 60.8

Northeast: Oct @ 43.3

$120

$160

$200

$240

$280

$320

$360

$400

$440

$120

$160

$200

$240

$280

$320

$360

$400

$440

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Average and Median New Home Sale PriceIn Thousands

Average Sales Price: Oct @ $354,900

Median New Sales Price: Oct @ $304,500


9

Existing Home Sales

Existing home sales rose 2.0 percent in October, following a 2.7 percent gain in September. The 5.60 million unit annual rate marks the strongest pace of existing home sales in nearly a decade. Pending home sales, which reflect purchase contracts, rose in each of the past two months and are up 1.8 percent year over year.

Housing inventory continues to edge lower, falling to 2.02 million homes in October. Inventories are now 4.3 percent below their year-ago level. Low inventories have kept prices firm, with the median price rising nearly 6 percent year-to-year. While affordability challenges continue to dampen sales activity, we expect existing home sales to rise 3 percent in 2016 and rise another 2.4 percent in 2017.

Source: National Association of Realtors, FHFA and Wells Fargo Securities

2.5

3.5

4.5

5.5

6.5

7.5

55

70

85

100

115

130

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Pending vs. Existing Home SalesIndex 2001=100, In Millions, Seasonally Adjusted

Pending Home Sales Index: Oct @ 110.0 (Left Axis)

Existing Home Sales: Oct @ 5.60 Million (Right Axis)

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1.5

2.0

2.5

3.0

3.5

4.0

4.5

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Inventory of Existing Homes for SaleExisting Homes for Sale at End of Month, In Millions

Total Inventory: Oct @ 2.02M

2

4

6

8

10

12

14

16

18

20

2

4

6

8

10

12

14

16

18

20

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Existing Home SupplyIn Months, Seasonally Adjusted

Condo Months' Supply: Oct @ 4.5

Single-Family Months' Supply: Oct @ 4.3

30

50

70

90

110

130

150

30

50

70

90

110

130

150

04 05 06 07 08 09 10 11 12 13 14 15 16 17

Existing Home SalesExisting Homes Sold During Month, Index, 2002=100

Northeast: Oct @ 75.0

Midwest: Oct @ 97.8

South: Oct @ 104.7

West: Oct @ 94.8

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

04 05 06 07 08 09 10 11 12 13 14 15 16

Median Single-Family Existing Home PriceYear-over-Year Percentage Change

Median Price Change: Oct @ 5.9%

6-Month Moving Average: Oct @ 5.2%

FHFA (OFHEO) Purchase Only Index: Aug @ 6.4%

Median Sale Price: Oct @ $233,700


10

Home Prices

The S&P CoreLogic Case-Shiller U.S. National Home Price Index rose 0.8 percent in September, pushing the index above its 2006 peak. Adjusted for inflation, however, prices remain about 14 percent below their prior peak.

While national home prices reached a new high in September, home prices in 13 of the 20 metro areas in the 20-City index remain below prerecession levels. House prices in Las Vegas, Phoenix, Miami and Tampa are more than 20 percent below their previous peaks.

The national home price index has risen 5.5 percent over the past year, which, when coupled with the recent pick up in mortgage rates, is adding further to affordability challenges.

Source: NAR, U.S. Dept. of Commerce, U.S. Dept. of Labor, S&P, FHFA and Wells Fargo Securities

34.5%

32.6%

11.8%

6.4%

5.4%

4.9%

4.7%

-2.6%

-7.8%

-8.9%

-8.9%

-9.2%

-13.3%

-13.8%

-14.4%

-18.2%

-21.9%

-22.6%

-28.2%

-34.8%

-9.1%

-7.1%

0.1%

-50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50%

DenverDallas

PortlandSeattleBoston

CharlotteSan Francisco

AtlantaLos Angeles

ClevelandSan Diego

MinneapolisWashington, D.C.

DetroitNew York City

ChicagoTampaMiami

PhoenixLas Vegas

C-10C-20

National

S&P CoreLogic Case-Shiller Home PricesPercent Change from Previous Peak, NSA

September 2016

11.0%

10.9%

8.7%

8.0%

7.5%

6.7%

6.2%

5.9%

5.8%

5.7%

5.6%

5.3%

5.3%

5.3%

5.3%

4.3%

4.3%

3.0%

2.7%

1.8%

4.3%

5.1%

5.5%

0% 2% 4% 6% 8% 10% 12% 14% 16%

SeattlePortlandDenverDallas

TampaMiami

CharlotteLos Angeles

DetroitSan Francisco

Las VegasSan Diego

AtlantaPhoenix

MinneapolisChicagoBoston

ClevelandWashington, D.C.

New York City

C-10C-20

National HPI

S&P CoreLogic Case-Shiller Home PricesYear-over-Year Percent Change, NSA

September 2016

60

80

100

120

140

160

180

200

60

80

100

120

140

160

180

200

00 02 04 06 08 10 12 14 16

U.S. Real vs. Nominal Home PricesS&P CoreLogic Case-Shiller Home Price Index Jan. 2000=100

Real Home Prices: Sep @ 134.1

U.S. National HPI: Sep @ 184.8

* Real = HPI Deflated w/CPI Less Shelter

$80

$120

$160

$200

$240

$280

$320

$360

$400

$440

$80

$120

$160

$200

$240

$280

$320

$360

$400

$440

89 91 93 95 97 99 01 03 05 07 09 11 13 15

Average and Median New Home Sale PriceIn Thousands

Average Sales Price: Oct @ $354,900

Median New Sales Price: Oct @ $304,500

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

97 99 01 03 05 07 09 11 13 15

Home PricesYear-over-Year Percentage Change

Median Sale Price: Oct @ $233,700Median Sale Price, 3-M Mov Avg: Oct @ 5.7%FHFA Purchase Only Index: Sep @ 6.1%S&P/Case-Shiller Composite-10: Sep @ 4.3%


11

Renovation and Remodeling

The Bureau of Economic Analysis’ second estimate for Q3 GDP showed home improvement spending rose at a 2.8 percent annual rate. The stronger Q3 reading coincides with the pickup in retail sales at building material, garden equipment & supply stores. On a year-over-year basis, improvement spending is up a solid 9.5 percent relative to the more modest 3.4 percent gain registered for residential investment excluding improvements.

The outlook for home remodeling activity remains positive, as tight inventory levels of for-sale housing are likely to continue to restrain sales activity. The JCHS Leading Indicator of Remodeling Activity also points to continued strength through 2017.

Source: Joint Center for Housing Studies, U.S. Department

of Commerce, NAHB and Wells Fargo Securities

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

96 98 00 02 04 06 08 10 12 14 16

Residential ImprovementsYear-over-Year Percent Change

Improvements: Q3 @ 9.5%

Res. Investment Ex. Improvements: Q3 @ 3.4%

10

15

20

25

30

35

40

45

50

55

60

65

10

15

20

25

30

35

40

45

50

55

60

65

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

NAHB Remodeling Market IndexIndex, Seasonally Adjusted

Overall Index: Q3 @ 56.8Future Expectations: Q3 @ 57.5Backlog of Remodeling Jobs: Q3 @ 57.8

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$1,100

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

$1,100

92 94 96 98 00 02 04 06 08 10 12 14 16

Residential Investment Billions of Dollars

Other: Q3 @ $9.6 BBrokers' Commissions: Q3 @ $156.6 BImprovements: Q3 @ $224.1 BNew Building: Q3 @ $298.7 B

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

04 05 06 07 08 09 10 11 12 13 14 15 16 17

Building Material, Garden Equip & Supply Stores3-Month Moving Average

Year-over-Year Percent Change: Oct @ 5.4%

3-Month Annual Rate: Oct @ 8.4%

$100

$150

$200

$250

$300

$350

$100

$150

$200

$250

$300

$350

05 06 07 08 09 10 11 12 13 14 15 16 17

Leading Indicator of Remodeling ActivityIn Billions, 4-Q Moving Total, Harvard Joint Center for Housing Studies

JCHSForecast

Wells Fargo Securities Economics Group

Diane Schumaker-Krieg Global Head of Research, Economics & Strategy

(704) 410-1801 (212) 214-5070

[email protected]

John E. Silvia, Ph.D. Chief Economist (704) 410-3275 [email protected]

Mark Vitner Senior Economist (704) 410-3277 [email protected]

Jay H. Bryson, Ph.D. Global Economist (704) 410-3274 [email protected]

Sam Bullard Senior Economist (704) 410-3280 [email protected]

Nick Bennenbroek Currency Strategist (212) 214-5636 [email protected]

Anika R. Khan Senior Economist (212) 214-8543 [email protected]

Eugenio J. Alemán, Ph.D. Senior Economist (704) 410-3273 [email protected]

Azhar Iqbal Econometrician (704) 410-3270 [email protected]

Tim Quinlan Senior Economist (704) 410-3283 [email protected]

Eric Viloria, CFA Currency Strategist (212) 214-5637 [email protected]

Sarah House Economist (704) 410-3282 [email protected]

Michael A. Brown Economist (704) 410-3278 [email protected]

Jamie Feik Economist (704) 410-3291 [email protected]

Erik Nelson Currency Analyst (212) 214-5652 [email protected]

Misa Batcheller Economic Analyst (704) 410-3060 [email protected]

Michael Pugliese Economic Analyst (704) 410-3156 [email protected]

Julianne Causey Economic Analyst (704) 410-3281 [email protected]

E. Harry Pershing Economic Analyst (704) 410-3034 [email protected]

Donna LaFleur Executive Assistant (704) 410-3279 [email protected]

Dawne Howes Administrative Assistant (704) 410-3272 [email protected]

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housing chartbook: 2016 half-time report

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