First-quarter economic data from the office of the chief economist at Freddie Mac showed a 2.2% growth rate, slower than the previous quarter, but better than three of the past four quarters. The slower growth primarily reflected less housing inventory accumulation and a dip in nonresidential construction. Personal consumption expenditures grew at a 15.3% annual rate, reflecting continuing strength in consumer durables (such as cars and kitchen appliances). Also, residential fixed investment (RFI) added 0.4 percentage points to the quarter’s economic growth.
RFI, which primarily reflects new housing construction and remodeling expenses, has been a net positive contributor to growth for four straight quarters, with the latest quarter providing the biggest boost in nearly two years. Multi-family rental-apartment starts and existing-home remodeling have triggered the RFI growth. Housing starts were up in April, and have brought the monthly average over the first four months of 2012 to 713,500, up 24 from the same period a year ago. Nonetheless, RFI remains weak for this stage of the economic recovery compared with previous business cycles.
The Freddie Mac House Price Index (FMHPI) for the first three months of this year suggested that home values may be at or near their bottom in many markets. Comparing March 2012 with December 2011 results at the state level, the index was up at least 0.5% in 13 states, and about flat (plus or minus 0.5% in nine states, but down at least 0.5% in 28 states. With the lowest fixed-rate mortgage rates in more than 60 years, the extraordinary home-buyer affordability in many areas should translate into a sales pickup in 2012 relative to last year.
Despite some signs that the housing market may have bottomed, homeownership rates have continued to move lower through the first quarter. The U.S. Census Bureau reported that the national ownership rate dropped 0.5 percentage points to 65.5% (seasonally adjusted) during the quarter, down from a peak of 69.4% in the second quarter of 2004 and back to a level last seen in 1997. Some additional slippage in the homeowner rate is likely as more than 2 million homes remain in foreclosure proceedings nationwide.
In the same release, Census also reported that vacancy rates for both for-rent and for-sale homes declined further in the first quarter -- signs that the rental market continues to tighten and that excess vacant homes are being absorbed by household formations. Homeowner vacancy rates in one-family houses dipped to their lowest rate in six years, and rental vacancy rates for one-family houses fell to their lowest in almost nine years.
Another important first-quarter metric concerned the refinance boom. Although this may not be good news for home improvement retailers, homeowners who refinance are typically not using the opportunity to embark on home renovation projects. Freddie Mac’s first-quarter refinance activity reports found that about four of five borrowers who refinanced their mortgages either paid down their balance or kept it about the same. Further, more than 95% of refinancers in the conforming market chose fixed-rate loans, and about one in three shortened their term from 30 years to 20 or 15 years on their new loan.
“Taken together,” the report concluded, “the first-quarter data releases provide an encouraging sign for both the macroeconomy and the housing recovery. While not uniformly positive, for the most part, the data trend in the right direction.”