Why Home Sales are Rising
- Jul 23, 2015
Existing home sales in June rose to their highest pace in more than eight years, according to the National Association of Realtors on Wednesday. Total existing-home sales increased 3.2 percent to an annualized rate of 5.49 million units in June, compared with 5.32 million in May. Sales are now at their highest pace since February 2007, have increased year-over-year for nine months without pause; and they’re 9.6 percent above a year ago (5.01 million). All well and good, since housing sales reflects the health of the economy (though doesn’t contribute as much to GDP as new home sales), and CRE will ultimately benefit from a healthier economy.
But perhaps a more important metric for CRE also came out on Wednesday: the Architecture Billings Index (ABI), which is maintained by the American Institute of Architects. On the whole the news was good: spurred by continued demand for projects such as new education and healthcare facilities, public safety and government buildings, the ABI increased in June following less-positive fluctuations earlier this year. The AIA reported the June ABI score was 55.7, up substantially from 51.9 in May. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 63.4, up from a reading of 61.5 the previous month.
The ABI is derived from the organization’s monthly Work-on-the-Boards survey, conducted by the AIA Economics & Market Research Group. In the monthly survey, panelists are asked to report whether billings during the previous month significantly increased, remained about the same, or significantly decreased from the prior month. According to the proportion of respondents choosing each option, a score is generated, which represents an index value for each month, with 50 as the aforementioned increase-decrease threshold for billings. As a leading economic indicator of construction activity, the ABI reflects the about nine- to 12-month lead time between architecture billings and construction spending.
One property type less in demand in June was new apartments and condos. Though it’s impossible to tell from one month’s movement, demand may have crested for that property type, with index scores going down each month this year and reaching the lowest point since 2011, AIA chief economist Kermit Baker noted in his monthly statement. Even so, overall “the June numbers are likely showing some catch-up from slow growth earlier this year,” he said. “This is the first month in 2015 that all regions are reporting positive business conditions, and aside from the multifamily housing sector, all design project categories appear to be in good shape.”