The S&P CoreLogic Case-Shiller Indices showed that the rate of home-price increases across the U.S. had continued to slow in November.

[caption id="attachment_9470" align="alignleft" width="240"] Blitzer: Low inventories are supporting home prices.[/caption]

“Home prices are still rising, but more slowly than in recent months. The pace of price increases are being dampened by declining sales of existing homes and weaker affordability,” says David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices.  “Sales peaked in November 2017 and drifted down through 2018. Affordability reflects higher prices and increased mortgage rates through much of last year. Following a shift in [Federal Reserve] policy in December, mortgage rates backed off to 4.45 percent, from 4.95 percent.”

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.2 percent annual gain in November, down from 5.3 percent in the previous month. The 10-City Composite annual increase came in at 4.3 percent, down from 4.7 percent, in the previous month.

The 20-City Composite posted a 4.7 percent year-over-year gain as of November 2018, down from 5 percent in the previous month. Las Vegas, Phoenix and Seattle reported the highest year-over-year gains among the 20 cities.

In November, Las Vegas led the way with a 12 percent year-over-year price increase, followed by Phoenix with an 8.1 percent increase and Seattle with a 6.3 percent increase. Seven of the 20 cities reported greater price increases in the year ending November 2018, compared to the year ending October.

 Before seasonal adjustment, the National Index posted a month-over-month gain of 0.1 percent in November. The 10-City and 20-City Composites both reported a 0.1 percent decrease for the month. After seasonal adjustment, the National Index recorded a 0.4 percent month-over-month increase in November.

The 10-City Composite and the 20-City Composite posted 0.3 percent month-over-month increases. In November, eight of 20 cities reported increases before seasonal adjustment, while 15 of 20 cities reported increases after seasonal adjustment.

“Housing market conditions are mixed while analysts’ comments express concerns that housing is weakening and could affect the broader economy,” said Blitzer. “Current low inventories of homes for sale--about a four-month supply--are supporting home prices. Stable 2 percent inflation, continued employment growth, and rising wages are all favorable. Measures of consumer debt and debt service do not suggest any immediate problems.”

Mortgage applications decreased 2.7 percent from one week earlier, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ending Jan. 18, 2019.

The Market Composite Index measures mortgage loan application volume on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the index decreased 0.3 percent compared with the previous week. The Refinance Index decreased 5 percent from the previous week.

The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index increased 4 percent compared with the previous week and was 13 percent higher than the same week one year ago.

[caption id="attachment_9373" align="alignleft" width="144"] Joel Kan[/caption]

"Mortgage application activity cooled off last week after two consecutive weeks of sizeable increases. Both purchase and refinance applications saw declines but remained at healthy levels, with the purchase index remaining close to a nine-year high, and the refinance index hovering near its highest level since last spring," said Joel Kan, associate vice president of economic and industry forecasting for the MBA. "Reversing the recent downward trend, rates increased for most loan types last week, due to better-than-expected unemployment claims, easing-trade tensions and stabilization in the equity markets."

The refinance share of mortgage activity decreased to 44.5 percent of total applications from 46.8 percent the previous week. The adjustable-rate mortgage share of activity decreased to 8.3 percent of total applications.

The Federal Housing Administration share of total applications decreased to 10.5 percent from 10.9 percent the week prior. The Veterans Affairs share of applications decreased to 10.3 percent from 10.4 percent the week prior. The Department of Agriculture share of applications decreased to 0.4 percent from 0.5 percent the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, $484,350 or less, increased to 4.75 percent from 4.74 percent, with points decreasing to 0.44 from 0.45, including the origination fee, for 80 percent loan-to-value loans. The effective rate remained unchanged from last week.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances, greater than $484,350, increased to 4.59 percent from 4.53 percent, with points decreasing to 0.25 from 0.31, including the origination fee, for 80 percent LTV loans. The effective rate decreased from last week.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 4.82 percent from 4.76 percent, with points increasing to 0.62 from 0.52, including the origination fee, for 80 percent loan-to-value loans. The effective rate increased from last week.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.12 percent from 4.13 percent, with points increasing to 0.53 from 0.45, including the origination fee, for 80 percent loan-to-value loans. The effective rate increased from last week.

The average contract interest rate for 5/1 ARMs increased to 4.12 percent from 4.08 percent, with points increasing to 0.42 from 0.32, including the origination fee, for 80 percent loan-to-value loans. The effective rate increased from last week.

New construction starts in December fell 10 percent to a seasonally adjusted annual rate of $708.9 billion. They declined 7 percent in the prior month.

The December downturn reflects decreases in the three construction sectors, according to Dodge Data & Analytics. For instance: Residential building decreased 8 percent, due to reduced activity in December for both single family and multifamily housing. Nonresidential building dropped 14 percent, as its commercial building segment lost momentum following its heightened November amount. Non-building construction decreased 9 percent, with a steep plunge by the electric utility-gas plant category that outweighed a December rebound for public works.

For 2018, construction starts increased just 0.3 percent to $789.0 billion. That performance followed 7% gains in 2016 and 2017, as well as 11percent to 14 percent gains from 2012 through 2015. The 2018 increase in construction starts was restrained by a 31 percent decrease in the electric utility and gas plant category. If electric utilities and gas plants were excluded, however, construction starts in 2018 increased 2 percent compared to 2017.

[caption id="attachment_5116" align="alignright" width="150"] Robert Murray, chief economist for Dodge Data[/caption]

“By recent standards, the overall level of construction starts in 2018 can be regarded as healthy, but the substantially slower rate of growth compared to the prior six years is suggestive of a market that’s close to a peak,” said Robert A. Murray, chief economist for Dodge Data & Analytics. “Last year’s brisk economic expansion enabled market fundamentals for multifamily housing and commercial building to strengthen, which supported more growth for apartment projects, office buildings, and hotels. Single family housing showed improvement early in 2018, but then plateaued and began to recede given affordability constraints.”

Residential building in December was $300.6 billion (annual rate), down 8% from the previous month.  Multifamily housing retreated 15%, slipping for the second month in a row after a 19% gain in October.  There were four multifamily projects valued at $100 million or more that reached groundbreaking in December, compared to ten such projects in November.

The large multifamily projects in December were led by a $265 million apartment building in Oakland and a $150 million apartment building in Long Beach, Calif.  Single family housing in December dropped 5%, settling back from the extended plateau that was present for much of 2018.  The December pace for single family housing was down 7% from the average dollar volume for the previous eleven months.

The 2018 amount for residential building was $323.5 billion, up 5%.  Multifamily housing grew 8% in 2018, rebounding from the 8% decline that was reported for 2017.  The largest multifamily projects that reached groundbreaking in 2018 were the $700 million City View Tower at Court Square in Queens, N.Y., the $580 million multifamily portion of the Winthrop Square Tower in Boston, and the $550 million Queens Plaza Park Apartments in Queens, N.Y.

The top-five metropolitan areas ranked by the dollar amount of multifamily starts 2018, compared with the previous year were New York, up 2 percent; Boston, up 71percent; Washington D.C., up 26 percent; Miami, up 43 percent; and Los Angeles, down 11 percent.

Metropolitan areas that ranked six through 10 were San Francisco, up 23 percent; Seattle, up 25 percent; Dallas-Ft. Worth, up 24 percent; Chicago, down 28 percent; and Philadelphia, up 3 percent.

Eight of the top-ten metropolitan areas for multifamily housing reported gains in 2018 compared to the prior year, which reported only three of the top-ten metropolitan areas reporting gains in 2016.  Single family housing in 2018 rose 4 percent, a smaller increase than the 9 percent increase in 2017.  The top five regions for single family housing in 2018 were as follows: the West, up 8 percent; the South Atlantic, up 5 percent; the South Central, up 4 percent; the Midwest, up 1 percent; and the Northeast, down 1 percent.

Going forward into 2019, economic growth is not expected to be as strong as what occurred during 2018, which may dampen groundbreaking for multifamily housing and commercial building projects,” said Murray.