Advertisements

Tag Archives: Housing

Housing still hoping to gain momentum

Michael J. Berens

Wednesday, August 24, 2016

Share this article
Housing still hoping to gain momentum

Slow but steady is the current prognosis for the housing industry. Housing starts are up for the first seven months of the year, but month-to-month gains have remained flat for the past four months. Meanwhile, requests for single-family permits have declined, which could mean fewer new starts in the months ahead.

Nonetheless, builders and housing experts expect the industry will continue to experience modest growth in the second half of the year.

Overall, housing showed signs of improvement in July. The U.S. Department of Commerce announced that housing starts (in number of units) rose 2.1 percent, compared to June, reaching their highest reading since February. Most of the gain was in the multifamily sector, which was up 5 percent. New single-family starts stayed positive but flat, nudging up only 0.5 percent. Applications for new permits slipped slightly (0.1 percent) but were 0.9 percent above a year ago.

Similarly, Dodge reports residential construction (in dollars) increased 3 percent in July over June. Again, the strongest gains were in multifamily, which jumped 9 percent, while single-family construction ticked up just 1 percent. Multifamily also was the strongest performer on the Architecture Billings Index for July, says the American Institute of Architects.

According to the National Association of Home Builders’ Leading Market Index for the second quarter of 2016, average economic and housing activity nationwide is now at 97 percent of “normal,” with 91 percent of markets showing year-over-year improvements. For housing, that means single-family permits and housing prices are nearly at 2000-2003 levels.

However, the boost has come mainly from rising housing prices. Permits as yet have rebounded only to 50 percent of “normal” activity. Realtor magazine relates sales of existing homes “heated up” in July, fueled by an increase in inventory (due to rising housing prices) and historically low mortgage rates.

More millennials in the 25- to 34-year-old age range were actively looking to purchase a home, as well. Qualifying for a mortgage and a shortage of affordable properties continue to be hurdles for many would-be first-time homebuyers, though. That, in turn, is driving the need for rental housing, which is pushing the demand for multifamily units.

Despite the rather mixed bag of favorable and concerning indicators, the industry outlook remains positive. Builder confidence, as measured by the NAHB’s Housing Market Index, was up two points in August, buoyed by improving employment and economic news. Builders were slightly more optimistic (up one point) about sales expectations for the next six months.

A joint forecast by economists from the Associated Builders and Contractors, AIA and NAHB predicts the industry will end the year maintaining its current level of a 10-plus percent increase over last year, and will continue to see gradual, modest growth in 2017.

In its National Residential Economic Report for the second quarter of 2016, MetroStudy forecasts the total number of residential permits will exceed that of 2015 by year’s end. For the longer term, it foresees an overall healthy housing market during the next five years, with valuations increasing and demand outpacing supply.

Unless some change occurs either in household income or home prices, affordability will remain on a drag on the industry’s efforts to accelerate growth.

Share this article

About the Author

Michael J. Berens

Michael J. Berens is a freelance researcher and writer with more than 30 years of experience in association communication and management. He can be reached at mjberensresearch@gmail.com.

Continue reading Housing still hoping to gain momentum

Advertisements

Housing pressures cool luxury home market

Michael J. Berens

Wednesday, January 02, 2019

Share this article
Housing pressures cool luxury home market

Many of the same factors that are dampening the housing market overall finally caught up with the luxury home sector during the second half of 2018. Prices and inventories have begun to drop, and sales have slowed. Areas where demand is high are still reporting brisk sales, but in other areas experts predict activity will remain tepid even though conditions now favor buyers.

Luxury properties were being snapped up at a near-record rate in the second quarter. While that brisk pace actually accelerated somewhat in the third quarter, total volume of sales declined, according to Redfin’s latest luxury home report.

One of the reasons for this seeming discrepancy is that in certain parts of the country where available homes for sale are scarce, such as the San Francisco Bay Area/Silicon Valley and the Washington, D.C., metro area, buyers are rushing to close on available properties, especially those at the lower end of the luxury home market.

Another reason for the demand for luxury homes in some areas is that rising prices over the past couple of years have pushed more homes into that traditional lower-end luxury home range.

Kaki Lybbert, chairman of Texas Realtors, for example, recently told Builder magazine, “Statewide, we’re seeing more homes priced in the $1 million-dollar-plus price class,” due to an influx of buyers moving into the state. “Many homes in the metropolitan areas of Texas reached that level due to increased land values,” explained Lybbert.

In other areas, though, activity has begun to cool. Redfin states that luxury home prices increased by just 3.2 percent year-over-year in the third quarter of 2018, the smallest rate of growth since 2016. Inventories also dropped, with the number of homes for sale at or above $2 million down 6 percent from the previous year.

Continuing the softening trend, listings and sales also dropped in October and November, according to the December 2018 Luxury Market Report from the Institute for Luxury Home Marketing. Sales of single-family luxury homes fell 11.7 percent from October to November, and new listings were down 27 percent.

The authors of the report note that “prices have begun to plateau,” especially at the higher-end of the market, homes selling for $8 to $10 million or more. On average, homes were selling for less than the original asking price. Sales of attached luxury homes were up 2.6 percent for the month, mostly in saturated metropolitan markets, and prices were up slightly, 2.3 percent, although on average properties sold for below asking price.

CNBC news recently reported that high-end homebuilder Toll Brothers announced a 13 percent annual drop in the number of signed contracts in the fourth quarter, and a 9.3 percent cancellation rate. Toll CEO Douglas Yearley Jr. blamed the slowdown on rising mortgage interest rates and the negative press about the struggling housing market.

Affordability is also factor, notes the CNBC article, since many potential buyers cannot or will not pay for such high price points, and among those that can, declining prices are making high-end luxury homes less attractive as an investment.

In their report, Redfin points to the recent volatility in the stock market as a major reason why buyers have left the market. They also observe that homeowners in overly heated markets, such as major metro areas in California, are selling their high-priced homes and purchasing more affordable homes in other areas, such as in nearby Nevada.

Since none of these factors are likely to change in the near future, experts predict that the luxury home market will experience a chilly 2019 winter season. That could have repercussions for interior designers, softening demand for services leading up to spring design season.

Share this article

About the Author

Michael J. Berens

Michael J. Berens is a freelance researcher and writer with more than 30 years of experience in association communication and management. He can be reached at mjberensresearch@gmail.com.

Continue reading Housing pressures cool luxury home market

Housing slips as market tightens

Michael J. Berens

Thursday, May 31, 2018

Share this article
Housing slips as market tightens

A strengthening economy and steady employment figures were not enough to combat market pressures in April in the housing industry. Indicators for both home sales and home construction dropped, following positive gains in March.

Despite high demand, low inventories, high prices and rising interest rates are making it difficult for many would-be buyers to find a desirable, affordable home.

In normal times, conditions would appear to favor the housing market. As builders and realtors both point out, the economy and job market are healthy, incomes have started to creep up, and demographic trends suggest we should be seeing a turnover in housing as baby boomers retire and millennials marry and start families.

Fannie Mae reports its Home Purchase Sentiment Index hit a record high in April (91.7), with consumer confidence strong and more homeowners saying now is a good time buy.

But these are not normal times. While acknowledging it’s now a sellers’ market, most homeowners have no intention of selling, creating one of the worst shortages of existing homes for sale in decades and escalating prices even higher.

Accordingly, the portion of prospective buyers in the Fannie Mae survey who said now is a good time to purchase a home fell by three points from April.

The tight inventory of existing homes has driven more buyers toward the purchase of a new home. But labor shortages and rising costs of materials have dampened the pace of new construction and pushed prices out of the reach of many first-time buyers.

These countervailing forces took their toll on the industry in April. After overcoming several months of negative growth in March, sales of new homes (in number of units) declined again in April, by 1.5 percent. (Nonetheless, total sales are up 11.6 percent from the previous year, largely due to strong activity last fall.)

Similarly, following two months of positive growth, sales of all existing homes slid by 2.5 percent, and are now down 1.5 percent from the same time last year. Sales of existing single-family homes dropped 3 percent.

At the same time, the pace of new construction slowed, falling 3.7 percent (in number of units) in April, from a 1.9 percent increase in March.

Most of that decline was in the multifamily sector. Growth in single-family construction was more or less flat for the month. Permit requests also were down, again in the multifamily sector. Single-family permits nudged up slightly (0.9 percent).

By dollar value, total residential construction in April tumbled 13 percent from the previous month, according to Dodge Data & Analytics. Multifamily projects dove 20 percent, while single-family construction was down by just 4.0 percent.

Year-over-year, however, residential construction was up 3 percent. (Because it is based on the value of new projects, Dodge’s data can be quite volatile from month-to-month.)

At present, market conditions show little sign of improving. The National Association of Home Builders states its Housing Market Index, which measures builder confidence, gained two points, to 70, at the start of May, with builders encouraged by rising demand for new single-family homes.

Yet, at the same time, builders are challenged to keep pace with demand and to hold costs to a level affordable for many prospective buyers.

Rising interest rates and the increasing cost of consumer goods, as well as higher home prices, are likely to deter most homeowners from putting their homes on the market. Altogether, these headwinds likely will retard home sales this spring.

Continue reading Housing slips as market tightens

Making housing more affordable

Michael J. Berens

Wednesday, October 24, 2018

Share this article
Making housing more affordable

Historically, a robust housing industry has been a bellwether of a booming economy. At present, however, the economy is at its strongest point in 10 years, but the housing industry is limping along.

Recent projections indicate annual home sales will fall below those of last year. A number of factors are contributing to this situation, but the major one is affordability. For many Americans who want to buy a home, the cost is just too high.

“Affordability remains a huge concern,” says Inna Khidekel, managing director of capital markets for Bridge Investment Group, which leads a Workforce and Affordable Housing Initiative as part of its multifamily fund management program.

The firm’s research finds nearly two-thirds (62 percent) of renter households earn below 80 percent of their area’s median income (i.e., $45,000 a year or less). Only 41 percent of households can afford the median list price of a home in their area. In addition, individual household factors such as family size and health status can affect how much in housing expenses is manageable.

Rising home prices are placing a home purchase even further out of reach. In the third quarter of this year, home prices reached their least affordable level since the same period in 2008 — a 10-year low, according to ATTOM Data Solutions. The cost of home ownership is also increasing as prices and mortgage rates rise.

A study by the Urban Institute found that as of July 2017, the share of median income needed for the monthly payment with a 20-percent-down mortgage on a median-priced home stood at 22 percent, up from 18 percent five years ago. The study also forecast that if rates rose to 4.75 percent (they have been hovering between 4.71 and 4.79 in the past few weeks), the share of income would increase to an average of 24 percent.

The problem has been growing for some time, as builders, pressed by increased construction costs and regulation, have opted to build more large homes and luxury homes that command higher prices.

In its 2018 State of the Nation’s Housing report, the Joint Center for Housing Studies at Harvard University (JCHS) states, “the share of smaller homes (under 1,800 square feet) built each year fell from 50 percent in 1988 to 36 percent in 2000 to 22 percent in 2017. Of this latest drop, 9 percentage points occurred in 2010-2013 alone.”

Between 1999 and 2015, in contrast, the share of large homes nearly doubled, from 17 percent to 31 percent. During this period, most multifamily construction has been focused on rental properties, not on condos or townhouses — popular starter-home options — whose construction has fallen by half.

Analyzing data from this year’s third quarter, Trulia relates that although housing inventories improved somewhat, starter homes are the hardest to find, comprising only one-fifth (20.9 percent) of the total market. MetroStudy chief economist Mark Boud, in his Q3 housing forecast, noted that homes for sale below $200,000 were scarce, while inventory at $400,000 and above was increasing.

The shortage of affordable homes to buy has heightened the demand for rental properties, driving up rents. CNBC reports rents in the third quarter of this year rose 2.9 percent compared to a year ago, up from 2.5 percent in the second quarter. JCHS found one-third of households in 2016 paid more than the 30-percent-of-income recommended industry standard for housing.

Moreover, adds Khidekel, some 12 million households spend more than 50 percent of their annual income on housing. They are among those experiencing what JCHS terms “shelter poverty,” that is, not having enough to cover basic necessities after paying for housing. Under such constraints, setting aside funds toward the purchase of a home is nearly impossible.

Most industry analysts agree the present situation is not sustainable, but at present it is difficult to see a way forward. Some point to low unemployment and a strong economy as a hopeful sign. However, rents, home prices and mortgage rates are increasing at a much faster rate than wage growth.

Others point to the millennials reaching household formation milestones. Yet, data from Freddie Mac estimates that 700,000 young adults refrained from buying a home between 2000 and 2016 because costs outpaced income growth.

The latest ValueInsured quarterly Modern Homebuyer Survey shows less than half (48 percent) of millennials believe buying a home is a good investment — a record low — compared to more than three-quarters (77 percent) a year ago.

More and more affordable inventory is needed, of both new and existing homes, and soon. In an article for Forbes magazine, John McManus, a content director with Hanley Wood’s Residential Group, calls for an “all-out blitz of lower-priced, entry-level homes.”

He and a number of other experts suggest that wider use of new technologies and modular construction techniques, as well as changes in business practices, could help lower the cost of building a home. Trade and professional organizations have called for less regulation, which adds costs and delays to projects.

Some builders have begun to introduce models with smaller footprints and fewer frills to appeal to more economy-minded millennials. Others, like Bridge Investment Group, are investing in preserving,restoring and rehabilitating already existing buildings, thus holding down construction costs, especially in lower-income areas.

This is not just a housing industry issue. In a number of metropolitan and suburban areas around the country, providers of basic and valuable services, such as police, fire and emergency personnel, teachers, and healthcare professionals and paraprofessionals, cannot afford to live where they are needed. For the sake of our communities and society’s stability as a whole, the cost of housing needs to scale back to a level that most, not just some, Americans can afford.

Continue reading Making housing more affordable

%d bloggers like this: