Tag Archives: NAHB

Housing still hoping to gain momentum

Michael J. Berens

Wednesday, August 24, 2016

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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.

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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

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NAHB chief economist takes a look at the comparison of inflation and mortgage rates to see how the coming year will be shaped.

An important economic story for 2017 will be a rising rate of inflation. In historical terms, inflation will remain low. However, NAHB forecasts that inflation in 2017 and 2018 will exceed 2% for each year, marking the highest pace of price increases since 2012.

What impacts will additional inflation have on builders? First, mortgage interest rates are expected to rise. NAHB is forecasting the average 30-year fixed-rate mortgage to increase to just below 5% by the end of 2018—still historically low, but higher than with which this generation’s home buyers are familiar. The primary challenge to most home buyers is accumulating savings for a down payment and qualifying for a mortgage, but rising rates do reduce budgets.

Second, input costs, such as land and labor costs, will go up. Given ongoing scarcity of both factors in the building industry, inflation will place additional upward pressure on prices. Inflationary pressure could also raise the interest rate required for acquisition, development, and construction loans in an environment in which lending conditions for commercial real estate loans are tightening.

Why is inflation accelerating? The primary reason in the current cycle is short-term factors related to economic capacity. For example, the unemployment rate has been below 5.5% since May 2015. As the economy creates jobs, the pool of available workers becomes tighter and enterprises must offer higher wages to recruit.

This raises an important concern as the Trump administration assumes office. A key proposal from Trump’s campaign involved a trillion-dollar plan for infrastructure investment. Such a plan would offer positives for the economy. However, given the low unemployment rate and ongoing worker shortage, this fiscal policy—particularly if deficit-financed—would increase inflation and force the Federal Reserve to accelerate its planned interest rate hikes.

As such, it’s important for the government to consider policies that would hold back inflation. First, enact labor rules (including tax policies) that reward work. The labor force participation rate declined from 66.2% to 62.8% over the past 10 years. This reduction in the number of available workers cannot all be explained by the aging of America. Reducing taxes on workers or lowering the cost of hiring for employers would help stop the decline in number of people in the labor force and help hold back wage-related inflation.

Building more housing also can help as higher housing costs, for rental and owner-occupied, contribute to inflation. Smart regulatory policy that encourages construction can be a policy tool to check inflationary pressures.


Tariffs weigh on housing market

Michael J. Berens

Wednesday, July 25, 2018

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Tariffs weigh on housing market

Present and future U.S. tariffs on imported goods are taking their toll on the housing market as both builders and would-be buyers worry about rising costs and the likelihood that economic growth will begin to slow next year. The impact can be seen in market indicators for June, which fell across the board.

Dragged down by rising materials and labor costs, especially the soaring cost of lumber due to increased tariffs on frame lumber from Canada, the rate of new home construction (in units) dropped 12.3 percent in June compared to May, a nine-month low, and is now 4.2 percent below the same time last year.

Single-family starts dropped by 9.1 percent. That trend likely will continue, as requests for permits declined to their lowest level of the year, 2.2 percent below May’s figure and 3 percent from a year ago. Completions remained flat, putting additional pressure on already tight inventories.

Dodge Data & Analytics reports a 4 percent growth (in dollar volume) in residential construction in June. Single-family construction grew by 2 percent, and is up 5 percent compared to a year ago, with the strongest activity occurring in the South.

According to Michael Neal, senior economist for the National Association of Home Builders, “The concern over material costs, especially lumber, is making it more difficult to build homes at competitive price points, particularly for newcomers entering the housing market.” The NAHB’s Housing Market Index, which measures builder confidence, remained unchanged in July, in part because of concerns that higher costs will price homes out of the reach of most prospective homebuyers.

Total increased cost of goods for residential construction is up 5.4 percent since the beginning of the year, with lumber leading the way. Lumber prices have skyrocketed as high as 20 percent higher, depending on the type and source of the lumber and the size of the house.

Those higher prices put a crimp in June new home sales (in units), which fell 5.3 percent, more than twice what industry experts had expected. Sales are still up 2.4 percent over last year, however. Prices fell for a second month, perhaps an indication of market pressures, but are still well above what most prospective buyers can afford. The media price of a new home came in at $302,100, and the average price was $363,300.

Builders are not the only ones worried about the effects of tariffs.

The University of Michigan’s Surveys of Consumers at early July showed “negative concerns about the impact of tariffs have recently accelerated, rising from 15% in May, to 21% in June, and 38% in July,” states the Survey’s chief economist, Richard Curtin. In particular, consumers, especially more affluent consumers, are concerned about the possible negative impact tariffs could have on economic growth in the near future and on inflation.

These bread-and-butter concerns are causing some hesitancy on the part of potential homebuyers. Fannie Mae’s Home Purchase Sentiment Index for June slid 1.6 points in June, following two months of gains, including an all-time high in May.

Rising home prices and mortgages are among the reasons. And while participants indicate that on the whole they are optimistic about the economy and their personal finances, more of them in June expressed concerns that they could lose their job and that their incomes were not higher than they were a year ago. Tariffs and threats of more tariffs to come are contributing to those dimmer outlooks.

Even with these concerns, demand for housing remains high. Tight inventories and rising prices, however, continue to shut many prospective buyers of existing homes out of the market.

Sales of existing homes declined for the third straight month, although by less than 1 percent. Sales are now down 2.2 percent from the same time last year, while the median price of a home hit a new all-time high ($276,900), up more than 5 percent from a year ago. Sales of single-family homes dropped by the same 0.6 percent and the median price ($279,300) rose by the same 5.2 percent.

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Home sales weaken as buyers back off

Home sales weaken as buyers back off



Michael J. BerensTuesday, November 13, 2018

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Home sales weaken as buyers back off

Increased inventory and declining prices were not enough to seal the deal for some prospective homebuyers in September. Sales of both new and existing homes were down from August’s rather lackluster performance. Although demand remains high, concerns about rising mortgage rates and a shortage of entry-level properties kept buyers at bay.

After a modest gain in August, sales of new single-family homes dropped 5.5 percent in September, the lowest month-over-month decline since December 2016, and were down 13.2 percent from the same period last year.

In a reverse from earlier in the year, the median sales price of a new home ($320,000) was down 3.5 percent year-to-year, and the supply of inventory rose from 6.5 to 7.1 months. Yet, at an average price of $377,200 and with mortgage rates approaching their highest level in eight years, many would-be buyers cannot afford to purchase a new home.

Sales of existing homes extended their slump for the sixth straight month, sliding 3.4 percent, to their lowest level since November 2015. Overall, sales are down 4.1 percent from a year ago.

Inventories increased slightly, but the median home price ($285,100) is up 4.2 percent from a year ago, which is keeping many first-time buyers out of the market. Single-family home sales fell 3.4 percent from August and are down 4.0 percent from last September. Even sales of more affordable condos and co-ops ($239,200) declined 3.4 percent and are 5 percent below last year’s figures.

Some of the softening in sales can be attributed to the impact of hurricane activity in the South and Southeast regions of the country. But affordability remains the biggest challenge for the industry.

Weakening sales in recent months have begun to curb, but not reverse, rising home prices. At the same time, rising mortgage rates are eating away at whatever savings prospective buyers may have hoped to gain from more favorable prices.

Even though consumers are optimistic about their prospects and the economy as a whole, they are losing confidence in their ability to purchase a home. According to real estate website Redfin, early stage homebuying activity increased 11.2 percent from August to September, but the number of those making offers was down 13.7 percent from a year ago.

Fannie Mae reports that after increasing 5 percent in September, the net share of respondents to its Home Purchase Sentiment Index (HPSI) stating “now is a good time to buy a home” dropped back 5 percent in October, the second largest decline in the survey’s history. The net share of respondents stating “now is a good time to sell a home” also fell by 3 percent. October’s overall score was the lowest in a year.

Weakening sales also are impacting builders. New home construction activity (in number of units) fell by 5.3 percent from August to September, with single-family home starts dropping by slightly less than 1 percent.

Completions also were down, by 4.1 percent and 8.7 percent, respectively. Requests for permits were off by about half a percentage point overall, but single-family permit requests rose 2.9 percent.

These current trends suggest that while homeownership remains a goal for many Americans, buyers are no longer willing to pursue that goal at any cost. And that will have consequences for both sellers and builders. Noted NAHB Chief Economist Robert Dietz in announcing the results of the association’s October Home Market Index (HMI), “Unless housing affordability stabilizes, the market risks losing additional momentum as we head into 2019.”

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Demand for major remodels remains strong

As more long-term homeowners make the decision to stick with the home they have, they are undertaking larger-scale remodeling projects, such as complete room renovations or additions.

Due to the complexity of these changes, more homeowners are hiring professionals to assist with or do the entire project for them. While that’s great for business, it is pushing out wait times as project backlogs begin to pile up.

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