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All-Cash Sales and Prices Decline in the Third Quarter

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 All-cash purchases accounted for 7.9% of new home sales in the third quarter of 2024, marking the highest level this year but lowest level for the third quarter since 2022, according to NAHB analysis of the latest Census Quarterly Sales by Price and Financing report. Among mortgaged home sales, FHA-backed and VA-backed sales fell while conventional sales increased. This is in line with the overall trend observed in mortgage activity, as mortgage demand grew with moderating rates during this period. Despite the decline in total sales, the median purchase price of new homes (across all financing types) continued to increase in the third quarter.

Since the Federal Reserve began raising interest rates in early 2022, the share of all-cash new home sales has increased significantly, with an average of 8.7% amid this tightening cycle. The interest rate hikes have caused the average mortgage rate to more than double, surging from 3.1% in the fourth quarter of 2021 to 7.0% by the end of second quarter of 2024. The chart below illustrates how much more sensitive the all-cash share has become to changes in the federal funds rate since 2017. However, after peaking at 10.7% in the fourth quarter of 2022, the all-cash share has recently trended lower.

Although cash sales make up a relatively small portion of new home sales, they constitute a larger share of existing home sales. This share also increased significantly since the Fed began raising interest rates in early 2022. According to estimates from the National Association of Realtors, 30% of existing home transactions were all-cash sales in September 2024, up from 26% in August and 29% a year ago.

The share of FHA-backed sales fell from 13.0% to 11.9% in the third quarter of 2024, reaching the lowest level since the fourth quarter of 2022. This share remains below the post-Great Recession average of 17.0%. Meanwhile, the share of VA-backed sales also decreased, falling from 5.4% to 5.1%. Among declines in other types of new home financing, the share of conventional loans financed sales saw an increase in the third quarter of 2024, climbing from 73.9% to 75.1%, the highest level since the fourth quarter of 2022.

Price by Type of Financing

Different sources of financing also serve distinct market segments, which is revealed in part by the median new home price associated with each. In the third quarter, the national median sales price of a new home was $420,400. Split by types of financing, the median prices of new homes financed with conventional loans, FHA loans, VA loans, and cash were $466,100, $352,100, $404,000, and $401,600, respectively.

The purchase price of new homes financed with conventional and cash declined over the past year, while the price of homes financed with FHA loans and VA loans increased. The largest decline occurred in cash sales prices, which fell 21.1% over the year. This is in stark contrast to year-over-year price changes in the third quarter of 2022 and 2023, when median sales price rose 16.9% and 18.2% (see below).

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Remodeling Market Sentiment Dips in Third Quarter

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The NAHB/Westlake Royal Remodeling Market Index (RMI) for the third quarter of 2024 posted a reading of 63, down two points compared to the previous quarter.

Remodelers remain optimistic about the market even though the overall RMI edged down for the third consecutive quarter. Some have potential customers citing the upcoming election as a reason for putting large projects on hold. Remodelers also continue to face various headwinds such as difficulty finding skilled construction labor and higher interest rates. Nevertheless, the overall RMI reading of 63 is consistent with NAHB’s forecast for steady 2% growth in remodeling spending over the next two years.

The RMI is based on a survey that asks remodelers to rate various aspects of the residential remodeling market “good”, “fair” or “poor.”  Responses from each question are converted to an index that lies on a scale from 0 to 100. An index number above 50 indicates a higher proportion of respondents view conditions as good rather than poor.

Current Conditions

The Remodeling Market Index (RMI) is an average of two major component indices: the Current Conditions Index and the Future Indicators Index. 

The Current Conditions Index is an average of three subcomponents: the current market for large remodeling projects ($50,000 or more), moderately sized projects ($20,000 to $49,999), and small projects (under $20,000). In the third quarter of 2024, the Current Conditions Index averaged 72, declining one point from the previous quarter.  All three components remained well above 50 in positive territory: the component measuring small-sized remodeling projects (under $20,000) rose two points to 77, while both the component measuring moderate remodeling projects (at least $20,000 but less than $50,000) and the component measuring large remodeling projects ($50,000 or more) fell three points to 71 and 67, respectively.

Future Indicators

The Future Indicators Index is an average of two subcomponents: the current rate at which leads and inquiries are coming in and the current backlog of remodeling projects. 

In the third quarter of 2024, the Future Indicators Index was 55, down three points from the previous quarter.  Quarter-over-quarter, the component measuring the backlog of remodeling jobs fell three points to 57 and the component measuring the current rate at which leads and inquiries are coming in dropped two points to 53.

For the full set of RMI tables, including regional indices and a complete history for each RMI component, please visit NAHB’s RMI web page.

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2024 Second Quarter State-Level GDP Data

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Real gross domestic product (GDP) increased in 49 states and the District of Columbia in the second quarter of 2024 compared to the last quarter of 2023 according to the U.S. Bureau of Economic Analysis (BEA). Alaska reported an economic contraction during this time. The percent change in real GDP ranged from a 5.9 percent increase at an annual rate in Idaho to a 1.1 percent decline in Alaska.

Nationwide, growth in real GDP (measured on a seasonally adjusted annual rate basis) increased 3.0 percent in the second quarter of 2024, which is higher than the first quarter level of 1.6 percent. Nondurable-goods manufacturing; finance and insurance; and health care and social assistance were the leading contributors to the increase in real GDP across the country.

Regionally, real GDP growth increased in all eight regions between the first and the second quarter. The percent change in real GDP ranged from a 3.7 percent increase in the Rocky Mountain region (Colorado, Idaho, Montana, Utah, and Wyoming) to a 2.2 percent increase in the New England region (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont).

At the state level, Idaho posted the highest GDP growth rate (5.9 percent) followed by Kansas (5.6 percent) and Nebraska (5.3 percent). On the other hand, Alaska posted an economic contraction in the second quarter of 2024. The agriculture, forestry, fishing, and hunting industry was the leading contributor to growth in 11 states including Idaho, Kansas, Nebraska, and the states with the highest increases in real GDP, respectively. Mining, which declined in 33 states, was the leading contributor to the decrease in real GDP in Alaska, the only state with a decline in real GDP.

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State and Local Tax Revenue – 2024 Second Quarter Analysis

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State & local tax revenue from property taxes paid reached $780.9 billion in the four quarters ending in the second quarter of 2024 (seasonally adjusted), according to the Census Bureau’s estimates. This is a 1.7% increase from the revised $767.7 billion in the four quarters ending in the first quarter of 2024. Year-to-date, total state and local tax revenue was $1.05 trillion. This was 5% higher than the $995.7 billion through the first two quarters of 2023.

The 1.7% increase in the four-quarter property tax revenue was down from the previous quarter of 1.8%. Property tax revenues have continued to grow above the average rate of 0.96% since 2011, with this quarter marking the seventh consecutive quarter of above average growth.

Year-over-year, property tax revenue was 9.1% higher. Year-over-year growth in property tax revenue has consistently been above 9% for four consecutive quarters. Dating back to 2012, the average year-over-year growth is 4.0%.

The property tax share of total state & local tax collections in the second quarter stood at 37.8%, down from 37.9%. This was the first decline in the share since its recent trough in the third quarter of 2022 (33.7%).

Of total collections, property tax made up the largest share, followed by sales tax at 28.0%. Individual income tax represented 25.5% of tax revenue, while corporate tax made up the remaining 8.7% of revenues for state & local revenues in the second quarter of 2024.

Over the past decade, state & local governments have been most reliant on property taxes for revenue. Sales tax has had an increased importance since 2023, when the share of sales tax of total revenues grew above individual income tax shares. See the chart below for the trends of total tax revenues shares.

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House Price Appreciation by State and Metro Area: Second Quarter 2024

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House price appreciation was recorded in all 50 states and the District of Columbia. Limited resale inventory and strong growth in demand continued to put upward pressure on house prices.

Nationally, house prices grew at a relatively slower pace, compared to double-digit annual growth during the COVID-19 pandemic. According to the quarterly all-transactions House Price Index (HPI) released by the Federal Housing Finance Agency (FHFA), U.S. house prices rose 5.9% in the second quarter of 2024, compared to the second quarter of 2023. This rate of price growth decreased from 6.4% in the first quarter of 2024.

The quarterly FHFA HPI not only reports house prices at the national level, but it also provides insights about house price fluctuations at the state and metro area levels. The FHFA HPI used in this article is the all-transactions index, measuring average price changes in repeat sales or refinancings on the same single-family properties.  

Between the second quarter of 2023 and the second quarter of 2024, all 50 states and the District of Columbia had positive house price appreciation, ranging from 1.5% to 10.4%. West Virginia led the way with the highest price appreciation (+10.4%). It was followed by New Jersey with a 10.1% gain, and New Hampshire with a 9.1% gain. Meanwhile, Louisiana had the lowest price growth (+1.5%). Among all 50 states and the District of Columbia, 28 states exceeded the national growth rate of 5.9%. Compared to the first quarter of 2024, thirty-five out of the 50 states had a deceleration in house price appreciation in the second quarter.

House prices have changed unevenly across U.S. metro areas, from the second quarter of 2023 to the second quarter of 2024. House price appreciation ranged from -4.6% to +20.7%. In the second quarter of 2024, 14 metro areas, in reddish color on the map above, had negative house price appreciation, while the remaining 370 metro areas experienced positive price appreciation.

Meanwhile, house prices in the second quarter of 2024 are much higher than they were before the pandemic. Nationally, house prices rose 49.7% between the first quarter of 2020 and the second quarter of 2024. More than half of the metro areas saw house prices rise by more than the national price growth rate of 49.7%. Among all the metro areas, house price appreciation ranged from 13.8% to 81.0%. House prices in the South and the West have grown faster than the prices in the Midwest and Northeast. Within the top 20 metro areas that had the highest house price appreciation, 11 metro areas are in the South Atlantic Division and six in the East South Central Division, while none were in the Midwest.

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Second Quarter Multifamily Missing Middle

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The missing middle construction sector includes development of medium-density housing, such as townhouses, duplexes and other small multifamily properties.

The multifamily segment of the missing middle (apartments in 2- to 4-unit properties) has disappointed since the Great Recession. For the second quarter of 2024, there were just 3,000 2- to 4-unit housing unit construction starts. This is flat from a year prior.

As a share of all multifamily production, 2- to 4-unit development was just above 3% of the total for the second quarter. In contrast, from 2000 to 2010, such home construction made up a little less than 11% of total multifamily construction. Construction of the missing middle has clearly lagged during the post-Great Recession period and will continue to do so without zoning reform focused on light-touch density.

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Median Priced Existing Homes Less Affordable Than New Homes in Second Quarter

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NAHB’s Cost of Housing Index (CHI) highlights the burden that housing costs represent for middle and low-income families. In the second quarter of 2024, the CHI found that a family earning the nation’s median income of $97,800 must spend 38% of its income to cover the mortgage payment on a median-priced new single-family home. Because a typical existing home in the second quarter was more expensive ($422,100) than a typical newly built home ($412,300), the CHI for existing homes was higher, at 39%. 

Low-income families, defined as those earning only 50% of median income, would have to spend 77% of their earnings to pay for a new home and 79% for an existing one.

The latest results reveal that affordability has worsened for existing homes. A typical family needed 39% of its income to pay for a median-priced existing home in the second quarter, up from 36% in the first quarter. A low-income family needed 79% of its income vs. 71% in the previous quarter. In contrast, the CHI and low-income CHI for new homes remained unchanged between the first and second quarters of 2024, at 38% and 77%, respectively.

Additionally, CHI is produced for existing homes in 176 metropolitan areas, breaking down the percentage of a family’s income needed to make a mortgage payment in each area based on the local median existing home price and median income. Percentages are also calculated for low-income families in these markets.

In 14 out of 176 markets in the second quarter, the typical family is severely cost-burdened (must pay more than 50% of their income on a median-priced existing home).  In 89 other markets, such families are cost-burdened (need to pay between 31% and 50%). There are 73 markets where the CHI is 30% of earnings or lower.

The Top Five Severely Cost-Burdened Markets

San Jose-Sunnyvale-Santa Clara, Calif. was the most severely cost-burdened market on the CHI during the second quarter, where 94% of a typical family’s income is needed to make a mortgage payment on an existing home. This was followed by:

• San Francisco-Oakland-Berkeley, Calif. (79%)
• San Diego-Chula Vista-Carlsbad, Calif. (76%)
• Urban Honolulu, Hawaii (76%)
• Naples-Marco Island, Fla. (74%)

Low-income families would have to pay between 147% and 188% of their income in all five of the above markets to cover a mortgage.

The Top Five Least Cost-Burdened Markets

By contrast, Decatur, Ill., was the least cost-burdened market on the CHI, where families needed to spend just 15% of their income to pay for a mortgage on an existing home. Rounding out the least burdened markets are:

• Cumberland, Md.-W.Va. (17%)
• Springfield, Ill. (18%)
• Elmira, N.Y. (18%)
• Peoria, Ill. (19%)
• Binghamton, N.Y. (tied at 19%)

Low-income families in these markets would have to pay between 30% and 39% of their income to cover the mortgage payment for a median priced existing home.

Visit nahb.org/chi for tables and details.

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Best Quarter for Custom Home Building in Almost Two Years

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NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates gains for custom home building after some recent slowing. Custom home building typically involves home buyers less sensitive to changes for interest rates.

There were 52,000 total custom building starts during the second quarter of 2024. This marks an almost 6% increase compared to the second quarter of 2023 and the best reading since the third quarter of 2022. Over the last four quarters, custom housing starts totaled 180,000 homes, a 5% decline compared to the prior four quarter total (189,000) due to weakness in prior quarters.

After share declines due to a rise in spec building in the wake of the pandemic, the market share for custom homes increased until 2023 and then entered a period of retrenchment. As measured on a one-year moving average, the market share of custom home building, in terms of total single-family starts, has fallen back to just under 18%. This is down from a prior cycle peak of 31.5% set during the second quarter of 2009 and a 21% local peak rate at the beginning of 2023.

Note that this definition of custom home building does not include homes intended for sale, so the analysis in this post uses a narrow definition of the sector. It represents home construction undertaken on a contract basis for which the builder does not hold tax basis in the structure during construction.

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Credit for Builders: Rates Up, Availability Down in the Second Quarter

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During the second quarter of 2024, credit for residential Land Acquisition, Development & Construction (AD&C) continued to tighten and became even more expensive for most types of loans, according to NAHB’s survey on AD&C Financing. The survey was conducted in July and asked specifically about financing conditions in the second quarter, predating the release of some relatively weak economic data that has raised prospects for monetary policy easing.

The net easing index derived from the survey posted a reading of -33.7 in the second quarter (the negative number indicating that credit was tighter than in the previous quarter). The comparable net easing index based on the Federal Reserve’s survey of senior loan officers posted a similar result, with a reading of -23.8—marking the tenth consecutive quarter of borrowers and lenders both reporting tightening credit conditions.

According to the NAHB survey, the most common ways in which lenders tightened in the second quarter were by reducing the amount they are willing to lend, and by lowering the loan-to-value (or loan-to-cost) ratio, each reported by 85% of builders and developers. After those two ways of tightening, three others tied for third place: increasing documentation, increasing the interest rate, and requiring personal guarantees or other collateral unrelated to the project, each reported by exactly half of the borrowers.

As is often the case, as credit becomes less available it also tends to become more expensive. In the second quarter, the contract interest rate increased on all four categories of AD&C loans tracked in the NAHB survey: from 8.40% in 2024 Q1 to 9.28% on loans for land acquisition, from 8.07% to 9.05% on loans for land development, from 8.24% to 8.98% on loans for speculative single-family construction, and from 8.38% to 8.55% on loans for pre-sold single-family construction.

In addition to the contract rate, initial points charged on the loans can be an important component of the overall cost of credit, especially for loans paid off as quickly as typical single-family construction loans. Trends on average initial points were mixed in the second quarter. The average charge on loans for land acquisition was unchanged at 0.88%. The average declined from 0.85% to 0.70% on loans for land development, and from 0.57% to 0.47% on loans for pre-sold single-family construction. On the other hand, on loans for speculative single-family construction, average initial points increased from 0.76% to 0.89%.

Irrespective of changes in points, increases in the underlying contract rate were sufficient to drive up the average effective interest rate (calculated taking both contract rate and initial points into account), on three of the four categories of AD&C loans in the second quarter. The average effective rate increased from 11.09% to 12.22% on loans for land acquisition, from 13.35% to 14.32% on loans for speculative single-family construction, and from 12.95% to 13.08% on loans for pre-sold single-family construction. Meanwhile, the average effective rate declined on loans for land development—from 13.10% in 2024 Q1 to 12.93%.

The average effective rates on loans for land acquisition and speculative single-family construction in the second quarter of 2024 were the highest they’ve been since NAHB began collecting the information in 2018. However, there’s a reasonable chance the situation will improve in the third and fourth quarters, as the Federal Reserve has begun signaling its intent to cut rates later this year.

More detail on credit conditions for builders and developers is available on NAHB’s AD&C Financing Survey web page.

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Unchanged Lending Conditions, But Weaker Demand for Residential Loans in Second Quarter

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According to the Federal Reserve Board’s July 2024 Senior Loan Officer Opinion Survey (SLOOS), lending standards were essentially unchanged for all residential real estate (RRE) categories in the second quarter of 2024.  However, demand for RRE loans remained modestly weaker across all categories in the quarter.  Lending conditions were significantly tighter, and loan demand modestly was weaker across all commercial real estate (CRE) loan categories.  Nevertheless, language from the most recent Federal Open Market Committee (FOMC) suggest that cuts to the federal funds rate are imminent which will be welcomed relief for the real estate market and will help stimulate future loan activity.

Residential Real Estate (RRE)

Four of the seven RRE categories (GSE-eligible, non-Qualified Mortgage or QM jumbo, Non-QM non-jumbo, and Subprime)recorded a net share of banks reported tighter lending standards in Q2 2024 as neutral (i.e., 0%) . The other three categories, which included government (i.e., issued by FHFA, Department of Veteran Affairs, USDA, etc.), QM jumbo, and QM non-jumbo non-GSE eligible recorded a negative reading which means that more banks reported looser rather than tighter conditions.

Six of the seven categories of RRE loans showed a decrease in net tightening from Q1 2024 to Q2 2024, with the only exception being GSE-eligible which increased 1.8 percentage points.  The largest drop in the net tightening percentage occurred for Non-QM jumbo which fell 9.8 percentage points (pp) from 9.8% in Q1 2024 to 0% in Q2 2024.

All RRE categories reported net weaker demand in Q2 2024.  The survey has shown that banks have indicated weaker demand for at least 12 consecutive quarters for all RRE categories going back to Q2 2021 (Subprime leads all RRE categories at 16 consecutive quarters).

Commercial Real Estate (CRE)

Banks reported significantly tighter lending conditions for both multifamily as well as all CRE construction & development loans in Q2 2024.  However, both categories showed less net tightening than they did a quarter before, most noticeably multifamily falling 11.7 percentage points.  Nevertheless, it has been 10 consecutive quarters of tighter lending conditions for construction & development and 9 consecutive quarters for multifamily.

For multifamily, 17.5% of banks reported net weakening of demand for loans which is 16.4 percentage points lower compared to Q1 2024.  As for construction & development loans, 15.9% of banks reported net weakening of demand for loans which was little changed from the previous quarter.  Weaker demand has persisted for roughly the last two years for construction & development (10 consecutive quarters) and multifamily (8 consecutive quarters).

Special Questions

The Federal Reserve included a set of special questions this quarter which asked banks “to describe the current level of lending standards at your bank relative to the range of standards that has prevailed between 2005 and the present.”  Effectively, they are asking banks to think about the median lending standards over the last two decades and determine where do conditions today rank on this continuum.  On balance, banks indicated that the current level of lending standards is located at the tighter end of this range for all loan categories, including CRE and RRE loans.

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