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Reasons to Suspect the US Housing Market is Starting to Coo

Low unemployment doesn’t ensure more Americans can afford a home, and rising home prices say more about target markets than the supply of motivated buyers

AUGUST 8, 2018
2018Housing Slowdown Inventory
Months of supply for existing homes ticked up year-over-year in June for only the second time in three years. Given the number of existing homes for sale has been falling, the uptick in months of supply is likely attributable to a slower pace of sales.

With housing inventory shortages rampant across the nation, the summer of 2018 was supposed to be “the most competitive housing market in recorded history.”

But as July turns to August, reports suggest the rush of buyers missed many markets. Existing homes sales have fallen, compared to the same months last year, in four of the last five months. New U.S. home sales fell 5.3% in June to an eight-month low. It was the second drop in new-home sales in three months. June housing starts plunged 12.3%. Residential building permits issued in June dropped for the third consecutive month.

2018Housing Slowdown Existing SalesExisting homes sales have fallen year-over-year in four of the last five months. New U.S. home sales fell 5.3% in June to an eight-month low. It was the second drop in new-home sales in three months.“It’s alarming that single-family construction permit growth is decelerating, at a time when homeownership is rising and Millennials are reaching their peak age to really enter the market and buy their first home,” said Sam Khater, chief economist for Freddie Mac, in a statement about the Commerce Department’s June housing estimates. “The growing imbalance between demand and supply is the reason home prices continue to escalate.”

Home price growth has yet to be affected but the apparent weakening of demand suggests that the housing market may finally be cooling.

Housing inventory shortages have been a primary factor in rising home prices over the last three years. At the same time, skyrocketing building costs and the demographics of those who have money to spend in a period of declining wages has ensured a steady flow of expensive premium housing. Home prices have been rising at least twice as fast as incomes for the past four years.

“Home sales, new home construction and outlays for renovations and repairs were collectively a net drag on overall growth during the first half of the year, even as real GDP growth ramped up to a 4.1% pace during the second quarter,” according to special commentary on housing by the Wells Fargo Economics Group.

After nine years of U.S. economic growth, the housing industry is starting about 30% fewer single-family homes than the 1.3 million units that the National Association of Homebuilders calls a normal level of housing starts. The pace of multifamily starts has trended down since January.

“Higher lumber prices in light of tariffs on Canadian softwoodAtlanta Fed Wage Growth TrackerU.S. wage growth has slowed since November 2016 more steeply than it rose between November 2013 and 2016. Despite strong employment, wage growth has lagged economists’ expectations. After accounting for inflation, today’s average wage has about the same purchasing power it did 40 years ago.FEDERAL RESERVE BANK OF ATLANTAlumber and higher building material prices in general may be causing some builders to hold off on some projects, particularly starts of lower priced homes, which simply do not have enough profit margin in them to absorb these higher costs,” according to analysis by Wells Fargo Economics of the U.S. Commerce Department’s June monthly housing construction estimates. “Those higher costs are likely weighing even more heavily on apartment projects, which have seen permits tumble at an astounding 58.2% annual rate over the past three months.”

With prices already at all-time highs in most markets, rising interest rates exacerbate affordability problems. Rates were hovering below 4% going into 2018 but have since shot to as high as 4.6%.

Although it can vary market to market, these factors all point to housing affordability being pushed beyond what many people can pay. The clearest evidence is that months of supply for existing homes ticked up year-over-year in June for only the second time in three years. Given the total number of existing homes for sale has been falling, the uptick in months of supply is likely attributable to a slower pace of home sales.

In some markets, the increase in inventory is more pronounced. According to Realtor.com, active listings in July were up 44% year-over-year in San Jose, 29% in Seattle, 19% in Portland, 18% in San Diego, and 15% in Dallas.2018Housing Slowdown RatesInterest rates were below 4% going into 2018 but have since shot to as high as 4.6%. Prospects of rising rates pushes premium buyers to buy sooner, but can put off first-time buyers indefinitely.

Moody’s just released a positive outlook for the U.S. homebuilding sector, reflecting enthusiasm for fundamental business conditions overcoming housing headwinds over the next 12 to 18 months:

Momentum – key underlying drivers of housing demand, with homebuilding growth, now in year seven, and the overall economic expansion, now in year nine, show few signs of slowing.

Millennials – the biggest population cohort in the U.S. workforce is entering the housing market – both for purchases and for rentals – in powerful and increasing numbers.

Consolidation – homebuilders are finding it cheaper and quicker to enter new markets, and easier to go much deeper in existing markets, by buying competitors rather than “green fielding.”

Credit metrics – for much of the homebuilding industry, debt leverage is gradually being reduced, interest coverage is strengthening and recent declines in gross margins are slowing and even stopping.

It does appear U.S. economic fundamentals are little changed over the past few years. Those fundamentals have produced two-thirds of normal housing construction volume since the economy turned solidly up five years ago. Those aren’t laurels to rest on.

It’s possible the larger economy’s momentum and the direction of home buying might diverge, as this spring and summer have already seen a few months’ declines in home sales, home construction and permits issued. Home prices and mortgage rates continue to rise, and mortgage-interest deductions have been curtailed. These conditions are unfolding in an environment where U.S. wage growth has slowed since November 2016 more steeply than it rose between November 2013 and 2016.

Millennials should be doing a significant portion of home buying, given 20-somethings’ high potential for forming new households. Instead, they earn 20% less than the Baby Boomer generation did when they were in their 20s. And Millennials also have exponentially more student loan debt to repay than any other generation before. Inflated home prices and limited starter inventory are not in their favor.

I’m not an economist, so even if I wanted to make predictions, they wouldn’t be worth much. But here’s an early warning from somebody who knows: “Housing market activity – sales and construction – likely has peaked for this cycle,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, told clients after the Commerce Department’s release of June housing construction data this month.

Continue reading Reasons to Suspect the US Housing Market is Starting to Coo


New-home sales fall to a nearly 3-year low; inventory surges as housing-market outlook darkens

Published: Nov 28, 2018 10:27 a.m. ET

So far this year, sales are just 2.8% higher than a year ago

Bloomberg News/Landov
A contractor works on a town house under construction at a PulteGroup development in California.

The numbers: New-home sales ran at a seasonally adjusted annual 544,000 rate in October, the Commerce Department said Wednesday.



What happened: October’s selling pace for new single-family homes was 8.9% lower than September’s, although that report was revised upward. It badly missed the MarketWatch consensus forecast of a 589,000 pace, and was 12% lower than year-ago levels.

The median sales price in October was $309,700, 3.1% lower than a year earlier. At the current pace of sales, it would take 7.4 months to exhaust available supply. That’s not only above the 6 months that’s long been considered a marker of a balanced market, but also the highest level of supply in seven and a half years.

Read: A tax break to hasten gentrification? Housing market’s Opportunity Zones may miss their target

Big picture: The government’s data on new residential construction is based on small samples, and can be erratic and prone to sizable revisions. Still, it’s clear that the housing market has hit a rough patch. Sales of existing homes rose in October for the first time in six months, the National Association of Realtors said. National annual price growth decelerated for the sixth-straight month in September, according to the S&P/Case-Shiller 20-city index.


In the Elevator With Allbirds CEO Tim Brown
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In the year to date, new-home sales are just 2.8% higher than in the same period last year.

The question now is whether the housing cycle comes to an end, or stages a rebound. Some regional markets that have overheated over the past few years, like San Francisco, have bounced back after a cooling-off period. And there was a national rebound some time after the Federal Reserve quashed a nascent recovery in 2013 by reminding investors that interest rates would have to go up at some point.

What they’re saying: “It’s clear we are well into a correction period for the new home market,” said TIAA Bank’s John Pataky. “High prices and rising rates are continuing to take their toll on this segment, which is particularly sensitive to changes in these metrics. Additionally, declining homebuilder confidence is only exacerbating the troubles for the new home market on the supply side. Next year, we will likely see a tussle between price moderation creating additional demand and rising rates having the opposite effect.”

Read: Home builder confidence tumbles the most since 2014 as housing headwinds catch up

“If the economy manages to right itself with real wage growth expanding and housing affordability holding relatively steady (prices and mortgage rates), there is a sufficient backlog of demand to reboot housing for this cycle,” Steve Blitz, chief U.S. economist for TS Lombard, after the release of October housing starts data earlier in the month.

“Pay your money and take your chances, this is the bet to be made if your view on housing leans towards ‘soft patch’. Our outlook is that because the buildup in housing was never big enough for a ‘collapse’, the coming downswing in residential construction, and the housing sector more broadly, will drag down GDP growth but not enough to flip total growth negative.”

Market reaction: Home builder stocks slid after the report. Shares of PulteGroup Inc. PHM, +1.13% were down more than 2% in midmorning trading, and KB Home shares KBH, +0.28% lost more than 3%. The Dow Jones Industrial Average DJIA, +1.13% was little changed, however.

Continue reading New-home sales fall to a nearly 3-year low; inventory surges as housing-market outlook darkens

U.S. Pending Home Sales Unexpectedly Decline on Lean Listings

Contract signings to purchase previously owned U.S. homes unexpectedly declined in April, underscoring the housing market’s challenge centered around a persistent inventory shortage, according to data released Thursday from the National Association of Realtors in Washington.



  • Index fell 1.3% m/m (est. 0.4% gain) after an upwardly revised 0.6% increase (prev. 0.4%)
  • Gauge rose 0.4% y/y on an unadjusted basis after a 4.3% decllne

Key Takeaways

The latest results show home sales may struggle to gain much traction in coming months. A limited number of for-sale properties is keeping prices elevated at a time when mortgage rates have climbed to an almost seven-year high. Such headwinds make home ownership more difficult for some prospective buyers. Nonetheless, a healthy job market and lower taxes are expected to underpin housing demand. Data released last week showed existing-home sales fell in April to a three-month low.

 Official’s Views

“The unfortunate reality for many home shoppers is that reaching the market will remain challenging if supply stays at these dire levels,” Lawrence Yun, NAR’s chief economist, said in a statement.


At the same time, “demand for buying a home is very robust,” Yun said. “Listings are typically going under contract in under a month, and instances of multiple offers are increasingly common and pushing prices higher.”


Other Details

  • Signings dropped in three of four regions, led by a 3.2 percent decline in the Midwest; fell 1 percent in the South and 0.4 percent in the West, while sales agreements were unchanged in the Northeast
  • Pending home sales index for West was lowest since June 2014
  • Economists consider pending sales a leading indicator because they track contract signings. Purchases of existing homes are tabulated when a deal closes, typically a month or two later

— With assistance by Chris Middleton

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Home Prices Continued to Rise in February

Home-price gains accelerated in February for the 70th consecutive month, creating increasingly challenging conditions for buyers as interest rates also rise and inventory remains tight.

The S&P CoreLogic Case-Shiller National Home Price Index, which covers the entire nation, rose 6.3% in February, up from a 6.1% year-over-year increase reported in January.

Continue reading Home Prices Continued to Rise in February

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

WSJ: Spring Home Sales May Be Weakest in Years

The housing market may be dampened during the key spring selling season because of rising mortgage rates, less incentive for homeownership and weariness among first-buyers being priced out of the market.

About 40% of the year’s sales take place from March through June, according to the National Association of Realtors, as buyers look to sign a contract on a home before summer vacations and the new school year.

Lackluster sales volumes may put downward pressure on the price growth seen in the past few years, The Wall Street Journal reported. Buyers that can handle rising interest rates may find some opportunities to get a deal, while sellers in more expensive markets may be reluctant to sell.

 “It’s still going to be a tight market, but we’re moving from an extremely tight market to one that has some wiggle room around the edges for buyers,” Daren Blomquist, a senior vice president at the housing-research firm Attom Data Solutions, told the newspaper.

The NAR forecasts flat sales compared with a year earlier. Roughly 2.06 million homes were sold between March and June 2017, up from about 2 million in the same period a year earlier, according to the association.

Sales of higher-price homes are slowing through the U.S., partly because the tax overhaul capped the mortgage interest deduction and state and local tax deductions were limited to $10,000. The loss of those incentives is hitting housing markets in high-tax coastal states like California and New York.

Buyers at the low end are being priced out of the market by rising interest rates. The rate for a 30-year mortgage has risen about half a percentage point this year to 4.43 percent from 3.95 percent in early January. That means the median-priced U.S. home that costs about $55 more a month, or $660 a year.

Pending home sales, which measure signed contracts, not closings, fell 4.7 percent in January from December, the lowest point in nearly four years, the NAR said.

The weakness was nationwide, and December’s reading was also revised lower. Pending sales, which are an indicator of future closings, were 3.8 percent lower than January 2017.

Pending home sales in the Northeast fell 9 percent for the month and were down 12.1 percent from a year ago. In the Midwest, sales slid 6.6 percent monthly and 4.1 percent annually. Pending home sales in the South declined 3.9 percent for the month and were 1.1 percent lower than last January. Sales in the West were down 1.2 percent monthly and 2.5 percent annually.

“The economy is in great shape, most local job markets are very strong and incomes are slowly rising, but there’s little doubt last month’s retreat in contract signings occurred because of woefully low supply levels and the sudden increase in mortgage rates,” Lawrence Yun, chief economist for the NAR, said. “The lower end of the market continues to feel the brunt of these supply and affordability impediments.”

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The kitchen and bath industry is growing—just delve into the NATIONAL KITCHEN + BATH ASSOCIATION (NKBA)’s 2017-2018 market research. The report on trends and sales spans some eight kitchen product categories and 11 bathroom product categories, such as cabinetry, appliances, fixtures, and countertops, assessing value for each segment in new construction and remodeling. It also estimates the value of the market at $147.3 billion, with a growth of 10 percent in sales of products. Suzie Williford, NKBA executive vice president and chief strategy officer, deciphers the findings for us.


Suzie Williford; courtesy NKBA

Suzie Williford; courtesy NKBA


The report cites a 10 percent uptick in sales of products devoted to residential kitchen and bath remodeling and new construction.
What’s responsible for that jump??

The healthy economy has certainly contributed to the robust growth in our industry. Sales of residential kitchen and bath products grew 10 percent from 2015 to 2016 in response to new home construction and a vibrant remodel/replacement market. NKBA research indicates that the kitchen and bath industry will grow at similar rates for the next two years, bringing the industry to $178 billion in 2018.

Home sales, both new and existing, are a key indicator of the health of our business as well. In 2017, sales of new homes rose 8 percent, to 608,000 units, which was the best performance in a decade. Sales of existing homes, while more or less flat for the year at 5.45 million, still registered their highest level since 2006, when 6.48 million homes were sold, according to the National Association of Realtors.

Selling and buying homes are key drivers of the remodeling industry. Homeowners frequently seek to remodel kitchens and baths, whether they are sprucing up to sell their house or buying a home and renovating. NKBA research shows that 64 percent of kitchen remodels are prompted because the room needs updating.

What should designers know about the state of the kitchen and bath industry, particularly within the residential sector? ?
Designers should prepare to integrate more home technology into their designs, as well as principles of universal living. Outdoor kitchens are also growing enormously in popularity and add value to the home.

Many homeowners are considering the principles of universal design in their remodels. From now through 2036, 10,000 people will celebrate their 65th birthday every day, and for the millions who have no plans to sell their homes, they will be renovating with living-in-place elements in mind: wider doorways and hallways to accommodate wheelchairs or walkers, lever handles, voice-controlled systems. And this type of design isn’t just for the aging population, it’s for anyone, regardless of physical ability, whether their situation is temporary or permanent. So, it’s increasingly important for homeowners to enlist SKILLED PROFESSIONALS who are expert in translating these needs to beautiful, functional and safe spaces.

NKBA Design Competition Winner Raul Saldivar of  Aedificium LLC; courtesy Patricia Guerra of Aedificium LLC

NKBA Design Competition winner Raul Saldivar of Aedificium; courtesy Patricia Guerra of Aedificium LLC

What were some of the most surprising findings in the study? ?
For the rapid rate at which we are seeing smart home technology coming into the marketplace, consumers still haven’t embraced it as quickly as we might have expected.

The availability of smart home technology is growing at exponential rates—we saw quite a bit of this at our comprehensive trade expo, KBIS 2018, in January, especially in appliances. Many appliances are being built with connectivity options to home assistants, like Apple’s Siri, Amazon’s Alexa or Google Home. These devices can also control lighting, heating, security and other home systems by voice command or smartphone app. Designing for the smart home requires a little more advance planning—for instance, ensuring the necessary wiring is in the walls to allow for certain smart connections, docking or charging stations, and routing.

Many consumers are excited by the prospect of home technology, but they may not understand all its value-added potential. As the technology develops and consumers better understand what they need to make their lives better, the pace of integrating smart home technology will soar.


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To buy a house, millennials digging deep into family’s pockets

DETROIT — As home prices rise and competition for a limited supply of homes increases, young buyers are increasingly using a special financing to win in bidding wars: The Bank of Mom and Dad.

Continue reading To buy a house, millennials digging deep into family’s pockets


Realtor survey also shows waning confidence in an improving economy as Washington continues intransigence.
Fresh data from the National Association of Realtors indicates that 71% of homeowners believe now is a good time to sell, which is giving the group hope that more listings are on the horizon. That figure is up from 69% in the first quarter of 2017 and from 61% a year earlier.