Fewer homes being built, fewer homes being sold. But home prices keep rising....for now

It's not surprising, but we found out last week that April had a huge decline in home-building. In addition, that Commerce Department report showed where the pipeline was going dry, as permits and starts had a much larger drop than completions.

Building Permits

Privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 1,074,000. This is 20.8 percent (±0.9 percent) below the revised March rate of 1,356,000 and is 19.2 percent (±0.9 percent) below the April 2019 rate of 1,330,000. Single-family authorizations in April were at a rate of 669,000; this is 24.3 percent (±1.6 percent) below the revised March figure of 884,000. Authorizations of units in buildings with five units or more were at a rate of 373,000 in April.

Housing Starts

Privately-owned housing starts in April were at a seasonally adjusted annual rate of 891,000. This is 30.2 percent (±11.0 percent) below the revised March estimate of 1,276,000 and is 29.7 percent (±8.1 percent) below the April 2019 rate of 1,267,000. Single-family housing starts in April were at a rate of 650,000; this is 25.4 percent (±9.6 percent) below the revised March figure of 871,000. The April rate for units in buildings with five units or more was 234,000.

Housing Completions

Privately-owned housing completions in April were at a seasonally adjusted annual rate of 1,176,000. This is 8.1 percent (±13.5 percent)* below the revised March estimate of 1,279,000 and is 11.8 percent (±9.9 percent) below the April 2019 rate of 1,334,000. Single-family housing completions in April were at a rate of 865,000; this is 4.9 percent (±16.7 percent)* below the revised March rate of 910,000. The April rate for units in buildings with five units or more was 304,000.

The drop in starts speeds a decline that we were seeing from the start of 2020, with starts down a seasonally-adjusted 45% since January.

I can’t think this gets much better for May, as few homes were on the market for April, and the spike in unemployment has to be holding back people from wanting to build a new house.

After adjusting for seasonal factors, 409,100 homes sold nationwide last month, a 24% decline year-over-year. Compared to March, sales were down 23%, the largest fall since Redfin started collecting the data in January 2012.

San Francisco (-53.9%), Detroit (-46.8%) and New York (-45.8%) were among the metros that saw the largest decline in home sales year over year, according to the report. Only two metro areas saw year-over-year sales growth in April: home sales in Minneapolis were up 3.5%, and Bridgeport, Connecticut, had a 0.6% increase.

The number of homes available for sale across the U.S. fell 24.5% year-over-year during April to 1.66 million. It was the biggest drop on record and the eighth straight month of declines, according to Redfin. None of the 85 largest metros tracked by Redfin posted a year-over-year increase in the number of active listings.

But here's what's odd. Despite the lack of sales and the lack of desire , home prices have continued to rise in America at a solid rate.

The S&P CoreLogic Case-Shiller 20-city price index posted a 3.9% year-over-year gain in March, up from 3.5% the previous month. On a monthly basis, the index increased 0.5% between February and March.

Because of the two-month lag in the data included in the price index, the effects of the coronavirus pandemic on the housing market were not yet fully reflected in the data.

It's also interesting that even though few homes are being started, there wasn't a similar drop in new home sales in April. New home sales actually went up, albeit at the lower levels it fell to in March.

Sales of new single-family houses in April 2020 were at a seasonally adjusted annual rate of 623,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.6 percent (±14.9 percent)* above the revised March rate of 619,000, but is 6.2 percent (±17.1 percent)* below the April 2019 estimate of 664,000.

Both the new homes sale report and the Federal Housing Finance Agency release on home price changes of Q1 2020 showed that prices of homes were still jumping. What’s neat about the FHFA report is that it looks at the typical home sale in all 50 states, and in Wisconsin, this report said housing prices rose by 6.3% between March 2019 and March 2020. That placed the state 24th in the US, and above the national average of 5.7%.

The Wisconsin Realtors Association tells a similar story, saying that the median price of the few homes that sold in Wisconsin in April increased by nearly 10% compared to April 2019. In addition, median prices are up more than 8% year-to-date.

That rise in home values is also why I can see where Wisconsin home owners getting crunched this Fall, because home values will be assessed at these higher levels, if/when they come out (in Madison, we're delayed until mid-June due to COVID-19 shutdowns and adjustments). Given that many local governments won't be getting the sales tax revenue they're used to seeing, property taxes will likely be higher for many Wisconsinites this Fall in a time when many people will likely be stretched to make ends meet. And due to the GOP Tax Scam, many Wisconsinites won't be able to write off those higher property taxes on their taxes in early 2021 (unless the GOPs in the Senate sign off on the SALT Cap repeal that is part of the House's latest stimulus bill).

Which makes me wonder if/when the housing market follows the rest of the economy downward, especially as unemployment persists but enhanced unemployment benefits and stabilization checks go away. If April's lack of housing starts means the losses in that sector will multiply down the road, and the recent plummet in manufacturing lasts longer than 2 months, then you can see where we get a cascading effect similar to what we saw in the mid-late 2000s.

A combination of Bubbly home prices with the loss of middle-class jobs has wrecked the housing market before, and I don’t see why a version of that scenario isn’t in play as Summer comes around.