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The US housing market is slowly — but surely — returning to normal

Continue reading The US housing market is slowly — but surely — returning to normal


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.

Continue reading Tariffs weigh on housing market

U.S. Housing Starts Drop by Most Since ’16 to Nine-Month Low

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U.S. June Housing Starts, Permits Plunge to Nine-Month Low
U.S. June Housing Starts, Permits Plunge to Nine-Month Low

U.S. new-home groundbreaking and permits fell in June to the slowest paces in nine months, as higher mortgage rates and elevated costs for labor and materials pinch the housing market, government figures showed Wednesday.


  • Residential starts fell 12.3% to a 1.17m annualized rate (est. 1.32m) after downwardly revised 1.34m pace in prior month; biggest drop since Nov. 2016
  • Single-family home starts dropped 9.1%; multifamily starts dropped 19.8% 
  • Permits, a proxy for future construction of all types of homes, fell 2.2% to 1.27m rate (est. 1.33m) after unrevised 1.3m pace 

Key Takeaways

Shares of homebuilders fell after the report. While the data are volatile and often subject to significant revisions, the report suggests growth in the housing market may be more modest than previously thought amid constraints for both buyers and developers. Economists may wait for July data to judge whether the trend in construction has shifted. The figures mark the weakest activity since hurricanes Harvey and Irma struck the U.S. in August and September.

Potential customers are grappling with elevated interest rates and ever-rising home prices that are easily outpacing wage gains, even as a robust job market and tax cuts support demand. For builders, issues include elevated prices of lumber and other imported materials, partly due to tariffs. Developers have also cited difficulties finding qualified workers and ready-to-build lots.

The data follow a report Tuesday showing that a gauge of homebuilders’ confidence was unchanged in July from the prior month to match the lowest level this year. An index of the six-month sales outlook fell to the lowest since September, according to the survey from the National Association of Home Builders/Wells Fargo.

Wednesday’s report wasn’t as bad as the main numbers indicate, according to Ian Shepherdson of Pantheon Macroeconomics, who pointed out that the “most important” number, single-family permits, rose 0.8 percent from the prior month. At the same time, the trends in both construction and sales of such homes “have been about flat, more or less, since last fall,” and the housing market has probably peaked for this expansion, he wrote in a note.

Analyst’s View

“You could explain a decline, but not a decline of that magnitude,” Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC. He said Wednesday’s figures were “a one-month glitch and we’ll be somewhat back on track in the coming months, led by an economy that’s expanding, incomes which are expanding, employment which has been surprisingly strong, and although mortgage rates are rising, they’re not rising nearly as fast as they could.”

What Our Economists Say

June housing starts disappointed, and suggests that the gradual recovery in the housing market may be moderating further. However, digging into the details, at least some of the slowing is due to supply shortages — which is consistent with an economy that continues to grow above trend. Expect some easing in the pace of economic activity in the second half of the year.

— Tim Mahedy and Carl Riccadonna, Bloomberg Economics

Other Details

  • Single-family home starts fell to a 858,000 rate, slowest since December, from 944,000 the prior month
  • Groundbreaking on multifamily homes, such as apartment buildings and condominiums, fell to an annual rate of 315,000; data on these projects can be volatile
  • All four regions posted declines in starts, led by a 35.8 percent drop in the Midwest and a 9.1 percent decrease in the South
  • Some 160,000 homes were authorized but not yet started in June, up from 158,000 in May; the number of housing units currently under construction was 1.12 million, down slightly from the prior month
  • Report shows wide margin of error, with a 90 percent chance that the June housing-starts figure was between a 20.6 percent and 4 percent drop
  • Report released jointly by the Census Bureau and Department of Housing and Urban Development in Washington

— With assistance by Vince Golle, and Kristy Scheuble

Continue reading U.S. Housing Starts Drop by Most Since ’16 to Nine-Month Low

Remodeling growth levels out but remains strong

For the past several quarters, the remodeling industry has experienced exceptional growth. That trend may have run its course, though.

Industry indicators reveal activity during the third quarter of this year remained relatively flat. Experts project that demand is likely to remain strong, but that the rate of growth will taper off in 2019.

According to the latest BuildFax Housing Health Report, data from the past three months indicate the pace of remodeling is leveling out after several years of steep increases. The report finds that while remodeling activity in the third quarter of 2017 was up 1.7 percent year-over-year, activity in the third quarter of this year was down 1.77 percent.

Nonetheless, the annual rate of remodel volume, states the report, had increased by 2.39 percent as of the third quarter.

The National Association of Home Builders Remodeling Market Index (RMI), which peaked at 60 in the fourth quarter of 2017, has remained fairly constant this year, hovering between 57 and 58. It came in at 58 for the third quarter, the same as the previous quarter.

Remodelers participating in the index reported a slight increase in demand for both major and minor additions or renovations, as well as for work committed. At the same time, expectations for future market conditions stayed flat, project backlogs dropped, and requests for appointments or new proposals declined.

Among the results of the second quarter 2018 Home Design Trends Survey, the American Institute of Architects stated that single-family residential activity, while strong, slowed in the second quarter. Billings, which include additions and renovations, dipped to 57.9, compared with 61.7 in the first quarter. New project inquiries also fell, from 68.3 in the first quarter to 57.9 in the second.

The trends that have created the boom in remodeling are still in play. Many homeowners are choosing to remain in their current homes and update or improve them rather than shop for a next home.

Homebuyers, unable to find the kind of property they want, are purchasing a less desirable home and renovating. Plus, a shortage of skilled labor has created a backlog of committed projects and waiting lists for professional services. Those trends likely will continue next year and into 2020, but will gradually soften over time as the housing market changes and the number of delayed home improvement projects declines.

In addition, countervailing trends also are beginning to put a drag on demand. High prices and rising mortgage rates are keeping some would-be buyers out of the market. Fewer homes changing hands means less pre-sale and post-sale demand for remodeling services. At the same time, a recent slowdown in the growth of home prices have made some owners cautious about borrowing too much on their home’s equity, causing them to put off nonessential improvements.

Taken together, these trends suggest demand will continue to stay positive in the year ahead but not at the robust pace of the past few years. In its latest Leading Indicator of Remodeling Activity (LIRA) forecast, the Joint Center for Housing Studies at Harvard University (JCHS) projectsremodeling and home improvement will achieve 7.7 percent annual growth this year, but then will begin to slow in the first quarter of 2019, dropping to about 6.6 percent by the third quarter.

It is important to keep these projections in perspective. First, because of unusual conditions in the housing market, demand for remodeling services has been at near-historic levels in recent years. But what goes up eventually will come down. Second, as JCHS notes, even with the relative year-over-year slower growth, remodelers can still expect higher-than-average gains next year.

The key take away from the latest industry data is that remodelers and designers should plan on consistent demand next year. However, they may have to work a bit harder to land those projects.

Continue reading Remodeling growth levels out but remains strong

U.S. Housing Starts Top Forecasts on Multifamily Construction

U.S. new-home construction rose by more than forecast in March on a rebound in multifamily starts, giving a boost to first-quarter economic growth, government figures showed Tuesday.


  • Residential starts rose 1.9% to 1.32m annualized rate (est. 1.27m) after upwardly revised 1.3 mln pace in prior month
  • Multifamily home starts rose 14.4%; single-family fell 3.7%
  • Permits, a proxy for future construction of all types of homes, rose 2.5% to 1.35m rate (est. 1.32m) after 1.32m pace 

Key Takeaways

The results show a tight job market, improved finances and consumers’ elevated confidence to purchase big-ticket items are supporting construction. That means homebuilding probably contributed to economic growth for the second consecutive quarter. 

The strength in March was concentrated in multifamily construction such as apartment buildings. That category tends to be volatile; March’s advance in starts followed a 10.2 percent drop in the prior month. Permits for single-family homes were a weak spot, dropping 5.5 percent, the biggest decline in seven years, to the lowest level since September.

While demand remains solid, a shortage of workers, rising costs for materials and a scarcity of ready-to-build lots are limiting gains in building activity. With borrowing costs rising, affordability is also becoming a hurdle, as property values outpace potential buyers’ income growth.


Sentiment among homebuilders fell in April for a fourth straight month amid limited land availability and higher lumber prices, according to data Monday from the National Association of Home Builders/Wells Fargo.

Nevertheless, sentiment remains elevated, and in an indication that builders will remain busy in coming months, the number of homes under construction at the end of March reached 1.125 million, the highest level since July 2007. Single-family dwellings under construction inched up to 504,000, the most since mid-2008.

What Our Economists Say

The overall strength in March housing starts is all the more encouraging given that the colder-than-average weather is likely to have curtailed gains. Fundamentals appear to support a positive outlook for the construction sector, despite labor constraints and rising material costs. Demand should also be supported by a tight labor market and steady pay gains.

— Niraj Shah and Carl Riccadonna, Bloomberg Economics

Read more for the full reaction note.

Other Details

  • Single-family home starts fell to a 867,000 rate from 900,000 the prior month
  • Groundbreaking on multi-family homes rose to an annual rate of 452,000
  • Gains in housing starts were led by Midwest, with a 22.4 percent advance; Northeast rose 0.8 percent, while South and West dipped
  • Report shows wide margin of error, with a 90 percent chance that the March housing-starts figure was between a 10.5 percent drop and 14.3 percent gain
  • Report released jointly by the Census Bureau and Department of Housing and Urban Development in Washington

— With assistance by Chris Middleton

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Continue reading U.S. Housing Starts Top Forecasts on Multifamily Construction

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.

Continue reading Demand for major remodels remains strong

Mixed signals keep housing market in check

For real estate agents, February was a relatively good month. For homebuilders, it was disappointing. Consumers were happy to find extra money in their paychecks as the new tax laws took effect. Prospective homebuyers were concerned about impending mortgage rate hikes and escalating prices.

Continue reading Mixed signals keep housing market in check

No end in sight for remodeling industry’s upward trajectory

Earlier speculation that the red-hot remodeling industry might begin to cool down in 2018 appears to have been premature.

Despite challenges of labor shortages and rising materials costs, market conditions are generally favorable for remodelers of all stripes. A number of factors are coalescing that likely will not only continue to drive positive growth this year, but may also outpace that of recent years.

Continue reading No end in sight for remodeling industry’s upward trajectory

The right approach to design for aging in place

Building and remodeling projects to make homes more aging-friendly have boomed in recent years. And no wonder. The 74-plus million members of the baby boom generation — whose youngest members will turn 55 in two years and oldest members are already in their 70s — make up the largest portion of the nation’s homeowners and the second-largest group of homebuyers.

However, surprising as it may seem, these senior homeowners are undertaking changes to their homes not because they anticipate getting older, but because they foresee a time when their lives will change.

A survey conducted last spring by the National Association of Home Builders Remodeling Group found 80 percent of remodeling companies were doing aging-in-place projects, up from 68 percent in 2013. Interviewing local remodelers about the survey, the Detroit Free Press cited the example of one firm that had seen its business from aging-in-place projects increase to 30 to 40 percent of total revenue from just 15 to 20 percent five years ago.

In its second-quarter 2017 Home Design Trends Survey, the American Institute of Architects reported that aging-friendly and multigenerational living modifications were among the most commonly requested special features in residential projects. The NAHB’s most recent 55+ Housing Market Index shows builder confidence remaining positive and optimistic for the 14th quarter in a row.

Housing, building and senior organizations have been expecting the demographic inevitability of the aging of the baby boom generation for the past several decades. With multiple surveys showing that the vast majority of boomers have long planned to remain in their homes in their later years, much has been written about the benefits of modifying the home for aging-in-place.

In anticipation of the “silver tsunami,” professional associations like the National Kitchen & Bath Association and the American Society of Interior Designers established efforts early on to educated their members on the changes that occur with aging and how to design environments to make homes supportive, comfortable and safe for older occupants.

Although it took them some time to warm up to the idea, boomers are now coming round to appreciate the benefits of making some modifications, renovations and upgrades to their homes in response to present and future needs. But not so much, as one might expect, because they have come to accept that they are aging. Rather, it is because their lives are changing, and they want homes that will accommodate those changes.

Findings from this year’s Home Advisor Aging in Place report provide insights that should prove valuable to interior designers and kitchen and bath specialists. One of the difficulties designers have had with selling aging-in-place modifications to homeowners has been the stigma around aging.

Whatever their age, people in general don’t think of themselves as elderly, and they don’t want to think about getting “old,” by which they usually mean infirm or incapacitated. However, they do recognize that changes are occurring in their lives, whether that means no longer having children at home, experiencing some health or mobility issues, entering retirement or observing the needs of caring for an aging parent or relation.

“So, how do homeowners prepare for aging in place when they can’t admit that they’re aging in the first place?” asks the report’s author Marianne Cusato, adjunct associate professor at the University of Notre Dame’s School of Architecture.

“They perform regular maintenance and complete projects to keep their homes in good working order, for starters. And that sets them up to layer on the aging-related projects as their aging-specific needs are revealed.”

The report identifies a seven-phase planning period, which begins typically around age 55 and may continue to up to age 75 and beyond. As homeowners’ physical needs and lifestyles change over time, they move up to the period to add more extensive age-friendly modifications.

The changes usually begin by addressing low-cost, ease-of-use and ease-of-maintenance issues, and gradually move to renovations and upgrades made to improve functionality, safety and mobility. A major motivator for making changes is the experience of watching a loved one struggle to get around their home as they age.

For designers, the big takeaway from the report is that they don’t have to talk to these clients about aging. They just have to know what kinds of modifications and improvements to offer them that will suit the changes in their lives they want to address. It also indicates that there is substantial opportunity to attract clients early on by assisting them with smaller projects and then continuing to help them as their needs change over time.

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