Building permits pass critical 2008 benchmark

By Rick Sohn,
Umpqua Coquille LLC

Strong product prices and a Building Permits record high for this recovery are positive, while interest rates have hit bottom, and average home price gains are deceptive. Four-year market trends of lumber, logs, housing, and mortgage statistics are shown below.

Product prices remain strong, particularly compared to log prices, with studs over 50% of log prices for the third month in a row. Monthly average mortgage rates continued their decline, but the mortgage rates of recent weeks indicate that the end of falling mortgage rates may be near. Housing continues its upward trajectory with ups and downs. Building Permits continued up, surpassing 800,000 for the first time since 2008, the year homebuilding took a dramatic decline and fell below a million starts and permits. Unsold inventory rose for the first time in 2012, but is still at levels not seen since 2007.

USA Today reported this week that the median price of a home rose 9.4% from a year ago, but then asked, what does it really mean for the typical home? The price gain is deceptive. With fewer foreclosed, cut-rate cost homes pulling the average price down, the average home price increases without the value of a typical home actually rising in price. Foreclosures accounted for 24% of July sales, down from 29% a year ago.

Furthermore, the market is still upside-down for many, with half of all homeowners under age 40 (the newer homeowners, in more modest homes) owing more on their homes than they are worth. These homes are not being put on the market unless a move is necessary.

The recovery in homebuilding remains a bright spot in the economy, but the repair of the damaged housing market is slow. The USA Today article concludes that significant price increases will not happen until 2013 or 2014. This “maybe next year” attitude of economists has been going on now for 5 years. Patience is necessary to witness this recovery.

Data reports used with permission of:

1) Random Lengths. 2”x4”x8’ precision end trimmed hem-fir studs from southern Oregon mills. Price reported is Dollars per Thousand Board Feet generally for the second to last week of the month. One “board foot” of product measures 12 inches by 12 inches by one inch thick.

2) RISI, Log Lines. Douglas-fir #2 Sawmill Log Average Region 5 price. Current report is for the prior month. Dollars per Thousand Board Feet of logs are reported using standardized log measurements from the “Scribner log table.”

3) Dept. of Commerce, US Census Bureau. New Residential Housing Starts and New Residential Construction Permits, seasonally adjusted, annual rate. Current report is for the prior month. Recent reports are often revised in bold. Also, major revision made each May, reaching 2 1/2 yrs back.

4) Regional Multiple Listing Service RMLSTM data, courtesy of Janet Johnston, Prudential Real Estate Professionals Broker, Roseburg, OR. Inventory of Unsold Homes (Ratio of Active Listings to Closed Sales) in Portland Oregon, for most recent month available.
5Freddie Mac. Primary Mortgage Market Survey. 30-year Fixed Rate Mortgages Since 1971, national averages. Updated weekly, current report is for the prior full month.
6Mortgage-X average of current month weekly rates.

Issue #5-8. © Copyright Rick Sohn, Umpqua Coquille LLC. For permission to reprint for nominal fee, Email [email protected]

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