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U.S. Economic Outlook: January 2018

New Home Sales Continue Steady Rise - Metro Areas in the South Led Nation in 2017 Sales

Frank Nothaft    |    Videos

 

Sales of newly built homes have had a slow, steady recovery during the last several years, and the final quarter of 2017 was on pace to have the highest number of sales in a decade (Figure 1). It’s no wonder that homebuilders’ sentiment was so rosy at year-end.  According to the latest National Housing Market Index, homebuilder confidence in December was the highest in 18 years, and the traffic of prospective buyers was the most since 1998.[1]

Frank Nothaft Video Blog

Frank Nothaft Video Blog

At CoreLogic we use public records data to examine which markets have had the most home building activity over the past year. We found that metro areas in the South led the nation in new homes sold (Figure 2).  Four of the seven metro areas with the largest number of new home sales were in Texas: Houston, Dallas, Austin and San Antonio.  And Phoenix, Atlanta and Charlotte were the other three.  What these metro areas have in common is a strong local economy, land availability, and less land-use restrictions.  Noticeably absent from the top metro list are the major cities along the Pacific coast:  Limited land and regulatory red tape have constrained new supply, thus adding to the rapid home-price growth in these markets.

Frank Nothaft Video Blog

Frank Nothaft Video Blog

The increase in new home sales has been supported by household income growth, rising consumer confidence, and access to low-rate mortgages. During 2017, about two-thirds of mortgage-financed new home sales used a conventional loan, either conforming or jumbo, and one-third used FHA or VA loans (Figure 3).  The type of loan used for financing varied greatly with the price of the home.  For homes that sold for $250,000 or less, one-half of the loans were FHA or VA, products often used by first-time buyers.  In contrast, homes that sold for more than $1 million nearly always were financed by a jumbo loan.

Frank Nothaft Video Blog

Frank Nothaft Video Blog

Affordability continues to be a pressing issue for prospective buyers, especially in high-cost markets. Higher levels of new construction, by adding to the existing housing stock, can alleviate some of these pressures.  We expect a 5 percent increase in housing starts in 2018.  While this will help, we need an even larger increase in home building to alleviate the erosion of affordability, especially in high-cost areas.

[1] See National Association of Home Builders/Wells Fargo Housing Market Index at https://www.nahb.org/en/research/housing-economics/housing-indexes/housing-market-index.aspx

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