Current Construction Levels Show ‘Lost’ Building

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           Photo: Unsplash/Jimmy Chang

Construction of new single-family homes, while currently experiencing growth, is still underperforming compared to historical norms, according to new analysis from Zillow.

In the 15 year span between 1985 and 2000, there were 3.9 single-family home building permits issued for every 1,000 residents, whereas there are 2.6 today, a decline of 33.5 percent, per Zillow. Looking at the data through the lens of population growth, new permits per capita are still below historic building norms, and are trending downward. In 28 out of the 35 largest U.S. metros, the downward trend holds with a deficit of new permits compared to historical normal levels.

If permits were issued at historic rates (defined on a per incremental capita basis) over the last 10 years, there would have been some 2.3 million more single-family homes built nationwide. That represents almost two years of ‘lost’ building at the current rate of 1.3 million per year. Although construction rates have been steadily rising – with June new home sales up 2.4 percent from a year ago – the U.S. is still building fewer single-family homes on a per capita basis than it did historically.

 

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Dodge: 2018 so far a mixed bag for commercial, multifamily starts

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Dive Brief:

  • After an analysis of U.S. commercial and multifamily starts for the first six months of 2018, Dodge Data & Analytics reported this week that total volume of $101.4 billion was 1% less than what was recorded for the same period in 2017 but was 2% greater than starts from January 2016 through June 2016. In a metro-by-metro breakdown, half of the top 10 markets and 11 out of the top 20 metros saw increased commercial and multifamily starts during the first half of the year.
  • The New York City metro area led the top 20 markets with a start volume of $16 billion (+44%) for the first six months of 2018, but Boston (+56%) and Kansas City (+52%) had the highest percentage increases. Other metros that saw year-over-year increases through June 2018 were Miami (+34%); Minneapolis (+34%); Washington, D.C. (+23%); Phoenix (+19%); Austin, Texas (+15%); Portland, Oregon; (+15%) Seattle (+7%) and Orlando, Florida (+4%). The San Jose, California, metro area had the least January 2018 to June 2018 starts out of the top 20 markets at just over $1 billion (-37%), but Atlanta (-43%), Los Angeles (-38%) and San Francisco (-38%) saw the greatest decreases. Chicago (-37%) Denver (-25%), Dallas (-23%), Houston (-13%) and Philadelphia (-13%) also saw starts decline.
  • Multifamily starts kept the overall loss in volume to a minimum by balancing out an almost equal downturn in commercial starts. The multifamily market, according to Dodge chief economist Robert Murray, has shown resiliency after a 2017 decline, leading banks to ease up on lending standards. Other drivers of multifamily construction starts are an economy that requires housing for those entering the workforce, the millennial generation’s desire to live downtown, increasing home prices and fewer tax benefits of homeownership.

Dive Insight:

A healthy multifamily market means more business for the contractors that specialize in that sector. According to the National Multi Housing Council, Summit Contracting Group is the top multifamily builder in the U.S., based on 2017 unit starts of 6,053. Summit is followed in the rankings by Oden Hughes (5,220 units); Alliance Residential (5,170); Wood Partners (4,685); Mill Creek Residential (4,315); Greystar Real Estate Partners (3,963); Trammell Crow Residential (3,420); Suffolk (3,351); CBG Building Co. (3,269) and Carocon Corp. (2,957).

Summit recently won a $33 million contract to build a Class A apartment complex at Jacksonville, Florida’s Beachwalk development. The Sentosa Beachwalk apartments will include almost 350 units across a total of 354,972 square feet. One of the focal points of the development is a 14-acre, man-made beach from the firm Crystal Lagoons.

Crystal Lagoons’ pools are a popular feature for those developers that want to create a resort-style atmosphere. However, it looks like one community in northern Texas might have to do without. Developers for the $1 billion Bayside mixed-use development announced last month that they intended to ditch a lagoon from Crystal Lagoons that the former developer promised to city officials. The new project team told the city of Rowlett, Texas, that a crystal lagoon water feature would not draw in the much-needed commercial office tenants and that a more native landscape would be used instead.

 

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Housing Affordability Hits 10-Year Low in 2nd Quarter

Hand gives home and key to other hand with money cashRising home prices and interest rates pushed housing affordability to a 10-year low in the second quarter of 2018, according to the NAHB/Wells Fargo Housing Opportunity Index (HOI) released today.

In all, 57.1% of new and existing homes sold between the beginning of April and end of June were affordable to families earning the U.S. median income of $71,900. This is down from the 61.6% of homes sold in the first quarter and the lowest reading since mid-2008.

The national median home price jumped from $252,000 in the first quarter to $265,000 in the second quarter — the highest quarterly median price in the history of the HOI series. At the same time, average mortgage rates jumped by more than 30 basis points in the second quarter to 4.67% from 4.34% in the first quarter.

“Tight inventory conditions and rising construction costs are factors that are holding back housing and putting upward pressure on home prices,” said NAHB Chairman Randy Noel. “Meanwhile, tariffs on Canadian lumber imports are further eroding housing affordability. Builders are struggling to manage these costs to ensure pricing does not outpace expected gains in wage growth.”

“Rising household formations, along with a strong economic expansion in the second quarter that has fueled job growth, will support housing demand in the second half of 2018,” said NAHB Chief Economist Robert Dietz. “However, growing trade war concerns and the expectation of higher mortgage rates are additional headwinds that negatively affect housing affordability.”

Syracuse, N.Y., was the nation’s most affordable major housing market. There, 89.1% of all new and existing homes sold in the second quarter were affordable to families earning the area’s median income of $74,100. Meanwhile, the nation’s most affordable smaller market was also in the Empire State: In Elmira, 97% of homes sold in the second quarter were affordable to families earning the median income of $71,000.

Rounding out the top five affordable major housing markets were Scranton-Wilkes Barre-Hazleton, Pa.; Harrisburg-Carlisle, Pa; Indianapolis-Carmel-Anderson, Ind.; and Youngstown-Warren-Boardman, Ohio-Pa.

Smaller markets joining Elmira at the top of the list included Kokomo, Ind.; Davenport-Moline-Rock Island, Iowa-Ill.; Cumberland, Md.-W.Va.; and Wheeling, W.Va.-Ohio.

San Francisco, for the third straight quarter, was the nation’s least affordable major market. There, just 5.5% of the homes sold in the second quarter were affordable to families earning the area’s median income of $119,600.

The other major metros at the bottom of the affordability chart were all in California. In descending order, they were Los Angeles-Long Beach-Glendale, Anaheim-Santa Ana-Irvine, San Jose-Sunnyvale-Santa Clara, and San Diego-Carlsbad.

All five least affordable small housing markets were also in the Golden State. At the very bottom of the affordability chart was Salinas, where 9.8% of all new and existing homes sold were affordable to families earning the area’s median income of $69,100.

In descending order, other small markets at the lowest end of the affordability scale included Santa Cruz-Watsonville, Napa, San Luis Obispo-Paso Robles-Arroyo Grande and San Rafael.

Please visit nahb.org/hoi for tables, historic data and details.

 

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In the News – DIGGING DEEPER: TEN STRIKING FINDINGS FROM OUR LATEST STATE OF THE NATION’S HOUSING REPORT

In the News – DIGGING DEEPER: TEN STRIKING FINDINGS FROM OUR LATEST STATE OF THE NATION’S HOUSING REPORT

This year marked 30 years since the Joint Center released its first report in 1988 and this year’s report – like its predecessors – includes a number of statistics that surprised even the experienced researchers who prepare it. Here are ten that strike me as particularly notable from the 2018 report:

1. The average number of single-family homes for sale during 2017 was lower than at any point since 1982. Inventories, which have been low for several years, declined in 80 percent of the major metros tracked by Zillow. As a result, only one of these metros (Bridgeport, CT) had a for-sale inventory of more than 6 months, the amount commonly used to indicate a balanced housing market. One factor behind the lack of new inventory was that the U.S. added fewer new single-family units over the last 10 years than any 10-year total going back to the early 1960s – just 614,000 annually.

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2. One in three homeowners is age 65 or over. In Joint Center household projections a few years ago, we anticipated that by 2035, one in three households would be age 65 or over. However, this year’s State of the Nation’s Housing report notes that in 2016 one in three homeowners already were 65 or over. This is a by-product of both the aging of the population (10,000 baby boomers turn 65 every day) and the sharp decline in homeownership rates among younger adults over the past two decades. The shift has had many implications. Given that older owners move less frequently, in many markets it has helped reduce the number of homes for sale. And where limited supplies have driven up home prices, those gains have created wealth for older owners and increased challenges for younger renters who want to become homeowners.

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3. Only one in three renters has more than $10,000 in assets (INTERACTIVE). This is particularly notable because renters seeking to buy the median-priced home in the U.S. need about $14,000 to cover both a 3.5 percent down payment and to pay the estimated 2 percent in closing costs for that home. Even if they have the assets, many renters cannot afford the monthly mortgage payments needed to purchase recently-sold homes in many places, particularly large metros. At the extreme, only 11 percent of all renter and owner households in the Los Angeles metro (owners and renters) have incomes large enough that their monthly mortgage payment for the median-priced home sold in 2017 would not be more than 30 percent of their income. This means that 89 percent of that region’s households could not afford to buy the median priced home sold in the Los Angeles area in 2017.

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4. Only 11 percent of the population moved in 2017. This is notable because it is the lowest mobility rate recorded since the government began tracking moves in the early 1960s. The decline in mobility is partially due to the overall aging of the population, but mostly due to sharp declines in mobility across age groups and particularly the young adults who, contrary to conventional wisdom, are the least mobile generation of young adults in recent history.

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5. Households headed by immigrants accounted for 47 percent of household growth between 2010 and 2016. In contrast, immigrants accounted for 15 percent of household growth in the 1980s, 32 percent in the 1990s, and 41 percent in 2000s. Moreover, as the native-born population growth slows, immigration will be the primary driver of growth in total population and, in turn, growth in households. Assuming that the nation continues to add slightly more than one million net immigrants a year, as it has over the past four years, by 2040, immigration will account for two-thirds of total annual population growth in the U.S.

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6. In 2017, the homeownership rate for 35-44 year olds was 8 percentage points below the 1988 rate. With 20 million households in this age group, the decline translates into 1.6 million fewer homeowner households than would have existed if the 2017 rate had equaled the 1988 rate. The rate for 25-34 year olds was 6 percentage points lower, equivalent to 1.1 million fewer homeowner households. The bottom line is that although the overall U.S. homeownership rate of 63.9 percent in 2017 was roughly equal with the 64.0 percent rate in 1988, rates among younger adults were much lower than they were while rates among those age 65 and over were higher.

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8. Between 1990 and 2016, the number of units renting for $800 (in real terms) declined by 2.5 million units (INTERACTIVE). In contrast, during that time, the number of renter households earning less than $32,000 per year (the income needed to afford a unit renting for $800) increased by 5 million. Although this occurred while 7 million new rental units were built, the median asking rent for units built in 2017 was $1,550 per month, which suggests that new construction is not addressing the shortfall of affordable units for low- and moderate-income renters.

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9. The real median income of renter households rose by less than one percent since 1990. In contrast, inflation-adjusted rents grew by 20 percent. As a result, the share of cost-burdened renters grew from just over a third of all renters in 1990 (39 percent) to nearly half (48 percent) in 2016.

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10. More than 38.1 million households – roughly one-third of all households – are cost-burdened (INTERACTIVE)We report this metric every year and every year the number is staggeringly high. Maintaining the appropriate context and a wide perspective of both the level and the trends of cost burden among households is important to recognize the dire condition of housing affordability in the U.S. For example, even though the cost burdens are down 2 percent over the past year, the number of cost-burdened households is still 20 percent higher than in 2001 (6.5 million households), and up by 14 million households since 1990. Moreover, the share of households that are cost-burdened has risen from 26.5 percent in 1990 to 32.0 percent at last measure in 2016.

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These are ten facts that were particularly striking to me, but there are plenty of others. If you’d like to learn more, visit our State of the Nation’s Housing page where you’ll find the full report, a host of interactive maps and charts showing data from around the country, a fact sheet with more notable facts from this year’s report, and a 1988-2018 document showing how key housing metrics have changed over the last 30 years.

 

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In the News – Supply Constraints Hinder Sales and Affordability

In the News – Supply Constraints Hinder Sales and Affordability

NAHB Chief Economist Robert Dietz provided this housing industry overview in the bi-weekly newsletter Eye on the Economy

housing economicsThe dominant characteristic of the nation’s housing markets over the last few years has been a lack of resale supply and lagging single-family construction. This dearth of inventory has resulted in price growth, making prospective home buyers more cautious about a potential purchase.

Recent sales data reflect these trends:

  • New single-family home sales fell 5.3% in June to a seasonally adjusted annual rate of 631,000 — the lowest since October 2017. Nonetheless, the sales total for the first half of 2018 was 6.9% higher than the first half of 2017. Inventory of new homes stands at a healthy 5.7-months’ supply.
  • Existing home sales in June fell 0.6% to a rate that was 2.2% lower than a year ago. However, inventory increased 4.3% in June, 0.5% higher than last year and the first year-over-year gain in resale inventory in three years. Rising inventory of existing homes will help the supply-constrained market, but it also represents a competitive challenge to new construction.

Confidence remained healthy among single-family builders in July, a reflection of the second-quarter gains in homeownership (which increased to 64.3%) and a GDP growth rate of 4.1% — the strongest since the third quarter of 2014.

However, rising home prices are eroding housing affordability, which has been exacerbated by rising construction costs. For example, lumber prices are 38% higher than they were at the start of 2017. The good news is that they have fallen 16% since mid-May. Managing these construction costs will be key for enabling additional housing supply.

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In the News – New Home Sales Fall Back in June

In the News – New Home Sales Fall Back in June

Contracts for new, single-family home sales declined in June, falling 5.3% to a 631,000 seasonally adjusted annual rate according to estimates from the joint release of HUD and the Census Bureau. The decline came off a downwardly revised May estimate, which was dropped from an initial read of 689,000 to a new estimate of 666,000. The June estimate was the lowest annual pace since October 2017, a reminder that builders must manage costs as affordability concerns rise. While affordability conditions remain positive and the labor market sees low unemployment, prospective home buyers face increased uncertainties as interest rates trend higher and trade war concerns grow.

Despite the disappointing June estimate, total sales for the first half of 2018 (349,000) were 6.9% higher than the comparable total for 2017 (327,000). We expect the volume of new home sales to continue to expand along the current modest pace, subject to monthly volatility and supply-side cost concerns.

Inventory increased in June to 301,000 single-family homes for sale. The current months’ supply stands at a healthy level of 5.7. Given tight existing home inventory, more new homes can be absorbed by the market.

Median new home sales price (price of a home in the middle of the distribution) declined for the third consecutive month, falling to $302,100. Managing rising construction costs in the months ahead will be a key challenge for housing affordability, as input costs increase, although recent declines in lumber prices should help.

For the first half of 2017 (and relative to the first half of 2018), new home sales were up 14.4% in the Midwest, 7.3% in the South, 4.8% in the West, and down 1.3% in the Northeast.

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In the News – TCNA’s Ryan Marino Honored by ASTM w/ Award of Appreciation

In the News – TCNA’s Ryan Marino Honored by ASTM w/ Award of Appreciation

W. Conshohocken, PA, August 1, 2018-ASTM International Committee C21 on Ceramic Whitewares and Related Products recognized TCNA Standards Development and Research Manager, Ryan Marino, with an Award of Appreciation for his outstanding contributions to the revision of ASTM standard C373, a transformative contribution to water absorption testing and ceramic tile classification.

The Committee expressed their appreciation for Marino’s research and technical vision at the recent TCNA board meeting in June. A previous method that had stood for decades as the standard for testing water absorption took approximately 30 hours for results. Marino has been working for the past five years to develop a vacuum method that produced results in one hour. This research involved Marino taking the method to labs across the country and applying the test to determine the precision of the method. Marino facilitated a consensus of the testing facilities, industry discussion, and the review of data with the ASTM committee to build consensus for the balloting process to consider adopting the new process.

Bill Griese, TCNA Director of Standards Development and Sustainability Initiatives, remarked, “Ryan’s leadership in researching a vacuum method for determining the water absorption of ceramic tile significantly and positively impacts global trade in ceramic tiles.  Not only did his work inspire consensus on other international standards which had previously been debated for decades, the methodology at its core is being implemented by customs labs around the world and referenced in HS codes for ceramic tile.”

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