Home Price Gains Continued in December


National home prices continued to increase, hitting a new all-time high in December. Despite high mortgage rates, limited inventory and strong demand continued to push up home prices. Locally, six of 20 metro areas, experienced negative home price appreciation in December. The S&P CoreLogic Case-Shiller U.S. National Home Price Index (HPI), reported by S&P Dow Jones Indices, rose at a seasonally adjusted annual growth rate of 2.4% in December, slower than a 3.0% increase in November. It marks the fourth straight month of deceleration since September. Nonetheless, national home prices are now 70% higher than their last peak during the housing boom in March 2006. On a year-over-year basis (YOY), the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index posted a 5.5% annual gain in December, up from a 5.0% increase in November. It was the highest year-over-year gain over the past twelve months. Home price appreciation slowed greatly over the past year; the average YOY home price gain for 2023 was 2.4%, after the double-digit gains seen in the previous two years. Home prices are stabilizing as more buyers and sellers enter the market. Meanwhile, the Home Price Index, released by the Federal Housing Finance Agency (FHFA), rose at a seasonally adjusted annual rate of 1.2% in December, following a 4.3% increase in November. On a year-over-year basis, the FHFA Home Price NSA Index rose 6.5% in December, down from 6.6% in the previous month. In addition to tracking national home price changes, S&P Dow Jones Indices also reported home price indexes across 20 metro areas in December on a seasonally adjusted basis. While six out of 20 metro areas reported negative home price appreciation, 13 metro areas had positive home price appreciation. Home prices for Cleveland (OH) were unchanged from the previous month. Their annual growth rates ranged from -2.7% to 10.1%. Among all 20 metro areas, 10 metro areas exceeded the national average of 2.4%. Las Vegas led the way with a 10.1% increase, followed by Los Angeles with an 8.6% increase and Miami with an 8.0% increase. The six metro areas that experienced price declines are Portland (-2.7%), Minneapolis (-1.6%), San Francisco (-1.4%), San Diego (-1.3%), Detroit (-0.6%) and Dallas (-0.6%). The scatter plot below lists the 20 major U.S. metropolitan areas’ annual growth rates in November and in December 2023. The X-axis presents the annual growth rates in November; the Y-axis presents the annual growth rates in December. Seven out of the 20 metro areas, the dots above the blue line, had an acceleration in home price growth, while the remaining 13 metro areas, located below the blue line, experienced deceleration. ‹ New Home Sales Up at the Start of 2024Tags: FHFA Home Price Index, home prices, S&P CoreLogic Case-Shiller Home Price Index

Home Price Gains Continued in December2024-02-27T12:16:32-06:00

Labor Shortages Ease, But Remain Worse Than in the Last Boom


With home building volumes lower, labor shortages have eased considerably since record levels set in 2021 but remain relatively widespread in a historic context, according to results from the latest NAHB/Well Fargo Housing Market Index (HMI) survey. The February 2024 HMI survey asked builders about shortages in 16 specific trades. The percentage of builders reporting a shortage (either some or serious) of labor they employ directly ranged from a low of 33% for landscape workers to a high of 65%  for those performing finished carpentry. The finished carpentry shortage was down from 72% in 2023 and an all-time high of 85% in 2021 but remains higher than it was at any time during the 2004-2006 housing boom (when it reached a temporary peak of 58% in July 2005). Most of the labor shortage percentages in the above figure follow a similar historic pattern. In the typical case, most of the physical work required to build a home is performed not by laborers employed directly by the builders, but by subcontractors. As a 2020 NAHB study  showed, builders on average use two dozen different subcontractors and subcontract out 84% of their total construction costs to build a single-family home. The February 2024 HMI survey also collected information about shortages of subcontractors.  The percentage of builders reporting a shortage of subcontractors ranged from 35% for building maintenance managers to 63%  for finished carpenters. For all 16 trades, the shortage percentages for subcontractors and labor directly employed were fairly similar. Averaged over the nine trades that NAHB has covered in a consistent way since the 1990s (carpenter-rough, carpenter-finished, electricians, excavators, framing crews, roofers, plumbers, bricklayers/masons, and painters), the share of builders reporting shortages in February 2024 was 52% for labor directly employed and 51% for subcontractors. The two numbers have not always been this close. After 2012, as housing markets started to recover from the Great Recession, a 5- to 7-point gap opened up between the 9-trade average shortage of subcontractors and labor directly employed by builders, with the subcontractor shortages being consistently more widespread. NAHB’s analysis at the time indicated that workers who were laid off and started their own trade contracting businesses during the Great Recession started returning to work for larger companies—improving the availability of workers directly employed by builders while shrinking the pool of available subcontractors. After persisting for a decade, the subcontractor-direct labor gap finally narrowed in 2023 and disappeared entirely in 2024. The current 9-trade average shortage of 52% for labor directly employed is down from 58% in 2023 and a record-high 77% in 2021 but remains elevated in historical perspective—especially when considered relative to housing starts. During the boom period of 2004-2006, total housing starts were consistently over 1.8 million annually—as high as 2.0 million in 2005. Despite this high rate of construction, the 9-trade shortage percentage never exceeded 45% during the boom. In comparison, the current shortage percentage of 52% occurred against a backdrop of 1.4 million starts in 2023 and an annual rate of 1.3 million recorded so far in January of 2024. ‹ Existing Home Sales Jump in JanuaryTags: carpenters, economics, hmi, home building, housing, Housing Market Index, labor, labor market, labor shortage, subcontractors

Labor Shortages Ease, But Remain Worse Than in the Last Boom2024-02-23T13:18:30-06:00

Multifamily Missing Middle Construction Unchanged


By Robert Dietz on February 23, 2024 • The missing middle construction sector includes development of medium-density housing, such as townhouses, duplexes and other small multifamily properties. The multifamily segment of the missing middle (apartments in 2- to 4-unit properties) has disappointed since the Great Recession. For the fourth quarter of 2023, there were just 4,000 2- to 4-unit housing unit construction starts. This is flat from a year prior. As a share of all multifamily production, 2- to 4-unit development was just above 4% of the total for the fourth quarter. In contrast, from 2000 to 2010, such home construction made up a little less than 11% of total multifamily construction. Construction of the missing middle has clearly lagged during the post-Great Recession period and will continue to do so without zoning reform focused on light-touch density. ‹ Multifamily Developer Confidence in Negative Territory in Fourth QuarterTags: missing middle, multifamily, starts

Multifamily Missing Middle Construction Unchanged2024-02-23T08:15:28-06:00

Small Decline for Multifamily Built-for-Rent Share


By Robert Dietz on February 22, 2024 • According to NAHB analysis of quarterly Census data, the count of multifamily, for-rent housing starts declined somewhat during the fourth quarter of 2023. For the quarter, 102,000 multifamily residences started construction. Of this total, 98,000 were built-for-rent. The market share of rental units of multifamily construction starts fell back to a still elevated 96% for the fourth quarter as the already small condo market remained held back due to higher interest rates. In contrast, the historical low share of 47% was set during the third quarter of 2005, during the condo building boom. An average share of 80% was registered during the 1980-2002 period. For the fourth quarter, there were just 4,000 multifamily condo construction starts. An elevated rental share of multifamily construction is holding typical apartment size below levels seen during the pre-Great Recession period. According to fourth quarter 2023 data, the average square footage of multifamily construction starts was relatively unchanged at 1,050 square feet. The median declined came in at 1,022 square feet. ‹ Homeownership is Key to Household WealthTags: mfbfr, multifamily, multifamily size

Small Decline for Multifamily Built-for-Rent Share2024-02-22T08:18:47-06:00

Homeownership is Key to Household Wealth


Homeownership provides a wide range of benefits to households. In addition to providing households with a stable place to live, homeownership also offers an opportunity for households to accumulate assets and build wealth over time through equity. As of 2022, 66.1% of U.S. households owned their homes. For families that owned a home, the median net housing value (the value of a home minus home-secured debt) increased from $139,000 in 2019 to $201,000 in 2022, as home prices rose, and home mortgage debt was approximately flat1. In this article, we use the 2022 data from the Survey of Consumer Finances (SCF) to examine household balance sheets, especially their primary residence, across age and education categories. The 2022 SCF is a detailed triennial cross-sectional survey of U.S. family finances, published by the Board of Governors of the Federal Reserve System. Compared to the quarterly Financial Accounts of the United States (previously known as the Flow of Funds Accounts), which provides aggregate information on household balance sheets, the SCF provides family-level data2 about U.S. household balance sheets every three years since 1989. Homeownership plays an integral role in a household’s accumulation of wealth. According to the analysis of the 2022 SCF, nationally, the primary residence remained the largest asset category on the balance sheets of households in 2022 (as shown in Figure 1 above). At $40.9 trillion, the primary residence accounted for more than one quarter of all assets held by households in 2022, surpassing business interests (20%, $30.8 trillion), other financial assets3 (19%, $29.8 trillion) and retirement accounts (15%, $23.8 trillion). Playing an important role in household wealth accumulation, the primary residence not only represents the largest asset category on the household balance sheet, but also is a widely held category of nonfinancial assets by households. As mentioned earlier, about two out of every three households, 66%, owned a primary residence in 2022. Within the categories of financial assets, just over half of households, 54%, held retirement accounts, and 21% of households owned either stocks or bonds.  Other financial assets, which were held by 99% of households, include items such as checking accounts, money market accounts, and prepaid debit cards, which are often held more to facilitate financial transactions than to build wealth. In Figure 2, the bars represent the distribution of major assets on household balance sheets by age categories in 2022. The results shown in Figure 2 suggest that households generally accumulate more assets as they age. Total assets were $7.6 trillion for households under age 35, while they were $65.9 trillion for households aged 65 or older. The aggregate value of assets held by families where the head was aged 65 or older was approximately nine times larger than those held by families where the head was under age 35. The increases in the total assets among age groups indicate that the value of assets grows with age groups. Moreover, the distribution of major assets on household balance sheets varies by age group. Across age groups where households were under the age of 65, the aggregate value of the primary residence was the largest asset category on these households’ balance sheets. For households aged 65 or older, the primary residence became the second largest asset category, less than other financial assets. Although the aggregate value of the primary residence increases with age, partly reflecting higher homeownership rates across age categories, the aggregate value of the primary residence as a share of total assets declined with age, as shown in Figure 3. The decline in the share of total assets represented by the aggregate value of the primary residence was offset by growth in the share of other asset categories in aggregate, most notably stocks and bonds, other financial assets, and retirement accounts. An analysis of the SCF reveals that higher educational attainment is associated with higher value of asset holdings. The aggregate value of assets held by households with a bachelor’s degree or higher was five times higher than the aggregate value of assets held by those with some college or associate degrees. Notably, the primary residence remains the largest asset category for each educational attainment category. However, the aggregate value of the primary residence as a share of total assets varies by educational attainment categories. For households with a bachelor’s degree or higher, the aggregate value of the primary residence as a share of total assets was 23%, as these households held a greater amount of other assets, such as business interests, other financial assets, and retirement accounts. Meanwhile, for households with no high school diploma or GED, the primary residence accounted for half of their total assets. Note: 1 For details on changes in U.S. Family Finances from 2019 to 2022, see Aladangady, Aditya, Jesse Bricker, Andrew C. Chang, Sarena Goodman, Jacob Krimmel, Kevin B. Moore, Sarah Reber, Alice Henriques Volz, and Richard A. Windle (2023). Changes in U.S. Family Finances from 2019 to 2022: Evidence from the Survey of Consumer Finances. Washington: Board of Governors of the Federal Reserve System, October, https://www.federalreserve.gov/publications/files/scf23.pdf. 2 According to the SCF, the term “families”, used in the SCF, is more comparable with the U.S. Census Bureau definition of “households” than with its use of “families”. More information can be found here: https://www.federalreserve.gov/publications/files/scf23.pdf. 3 Other financial assets include loans from the household to someone else, future proceeds, royalties, futures, non-public stock, deferred compensation, oil/gas/mineral investments, and cash, not elsewhere classified. 4 Other residential real estate includes land contracts/notes household has made, properties other than the principal residence that are coded as 1-4 family residences, time shares, and vacation homes. 5 Other nonfinancial assets defined as total value of miscellaneous assets minus other financial assets. ‹ New Single-Family Home Size Moves LowerTags: asset, home mortgage, homeownership, household balance sheets, primary residence, primary residence equity, SCF, survey of consumer finances

Homeownership is Key to Household Wealth2024-02-21T10:15:31-06:00

New Single-Family Home Size Moves Lower


By Robert Dietz on February 21, 2024 • An expected impact of the virus crisis was a need for more residential space, as people use homes for more purposes including work. Home size correspondingly increased in 2021 as interest rates reached historic lows. However, as interest rates increased in 2022 and 2023, and housing affordability worsened, the demand for home size has trended lower. According to fourth quarter 2023 data from the Census Quarterly Starts and Completions by Purpose and Design and NAHB analysis, median single-family square floor area came in at 2,156 square feet, the lowest reading since the beginning of 2010. Average (mean) square footage for new single-family homes registered at 2,374 square feet. Since Great Recession lows (and on a one-year moving average basis), the average size of a new single-family home is now just 1.4% higher at 2,419 square feet, while the median size is just under 5% higher at 2,201 square feet. Home size rose from 2009 to 2015 as entry-level new construction lost market share. Home size declined between 2016 and 2020 as more starter homes were developed. After a brief increase during the post-covid building boom, home size is trending lower and will likely continue to do so as housing affordability remains constrained. ‹ Credit for Builders Remains Tight, But Tightening is Less Widespread

New Single-Family Home Size Moves Lower2024-02-21T08:16:18-06:00

Credit for Builders Remains Tight, But Tightening is Less Widespread


During the fourth quarter of 2023, credit for residential Land Acquisition, Development & Construction (AD&C) remained tight, according to both NAHB’s survey on AD&C Financing and the Federal Reserve’s . However, the tightening was not as widespread as it was in recent quarters. The net easing indices derived from both surveys were negative once again in the fourth quarter, indicating net tightening of credit, but not as negative as they were in the third quarter. The NAHB index posted a reading of -19.7, compared to -49.3 in the third quarter, while the Fed’s index posted a reading of -39.7 compared to -64.9 in the third quarter. Although both the NAHB and Fed indices have been in negative territory for eight consecutive quarters, the fourth quarter 2023 readings were as close to positive as either index has been since the first quarter of 2022. According to the NAHB survey, the most common ways in which lenders tightened in the fourth quarter were by reducing the amount they are willing to lend (cited by 73% of the builders and developers who reported tighter credit conditions), increasing the interest rate on the loans (69%), and lowering the allowable Loan-to-Value or Loan-to-Cost ratio (65%). Meanwhile, results from the NAHB survey on the cost of the credit were mixed.  Quarter-over-quarter, the average contract rate remained the same on loans for land acquisition at 8.31% but increased from 7.78% to 8.12% on loans for land development, and from 8.37% to 8.40% on loans for pre-sold single-family construction.  In contrast, the average contract rate declined from 8.66% to 8.41% on loans for speculative single-family construction. The average initial points paid on the loans declined from 0.86% to 0.71% on loans for land acquisition and from 0.93% to 0.73% on loans for speculative single-family construction but increased from 0.58% to 0.60% on loans for land development, and from 0.86% to 1.08% on loans for pre-sold single-family construction that are tracked in the NAHB AD&C survey. The above changes caused the average effective interest rates (rate of return to the lender over the assumed life of the loan, taking both the contract interest rate and initial points into account) to move in different directions. There was a relatively small decline (from 10.85% to 10.58%) on loans for land acquisition, and a more substantial decline (from 13.74% to 12.96%) on loans for speculative single-family construction. On the other hand, the average effective rate increased from 10.76% to 11.25% on loans for land development, and from 14.57% to 15.65% on loans for pre-sold single-family construction. More detail on credit conditions for builders and developers is available on NAHB’s AD&C Financing Survey web page. ‹ Declines for Custom Home BuildingTags: ad&c lending, ad&c loans, ADC, construciton loans, construction lending, credit conditions, economics, home building, housing, interest rates, lending

Credit for Builders Remains Tight, But Tightening is Less Widespread2024-02-20T14:19:38-06:00

Declines for Custom Home Building


By Robert Dietz on February 20, 2024 • NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates a slowing market for custom home building after a recent gain in market share. There were 44,000 total custom building starts during the fourth quarter of 2023. This marks a more than 2% decline compared to the fourth quarter of 2022, consistent with weakness experienced throughout the home building sector. Over the last four quarters, custom housing starts totaled 178,000 homes, a nearly 13% decline compared to the prior four quarter total (204,000). After share declines due to a rise in spec building in the wake of the pandemic, the market share for custom homes increased until recently. As measured on a one-year moving average, the market share of custom home building, in terms of total single-family starts, has fallen back to just under 19%. This is down from a prior cycle peak of 31.5% set during the second quarter of 2009. Note that this definition of custom home building does not include homes intended for sale, so the analysis in this post uses a narrow definition of the sector. It represents home construction undertaken on a contract basis for which the builder does not hold tax basis in the structure during construction. ‹ Strong Quarter for Single-Family Built-for-Rent ConstructionTags: custom, custom building, economics, home building, housing, single-family

Declines for Custom Home Building2024-02-20T08:18:40-06:00

Do You Trust the Internet to Solve Your Real Estate Problems?


The process of buying, selling, or leasing property can get complicated in countless ways. Just look at the comments on real estate forums and websites. People encounter all manner of issues and are looking for advice about what do when … The seller has a lien he didn’t know about. A person buying a home is thinking of renting out her current home rather than selling it. The seller accepted the buyer’s offer, and now the buyer found a home he likes better. The homebuyer wants to move in before closing and rent the home until the closing date. An inspection revealed costly repairs are needed, and the buyer wants to renegotiate the purchase price. A buyer has a contract to buy a home and learned the seller has another a contract with a second buyer. The buyer and seller disagree about what items should stay with the property after the sale. A buyer of a commercial building doesn’t understand the seller’s reply to his offer. The seller wants to know how to handle multiple offers. The seller didn’t show up to closing, and the buyer doesn’t know what to do. This list could keep going and going.  When you “ask the internet,” you don’t know if the answers you get are accurate. On the other hand, a REALTOR® is a professional with the experience and knowledge to help you avoid many problems, deal with those that arise, and help you reach the best possible outcome on your real estate transaction.  If you’re not working with a REALTOR®, find one here. 

Do You Trust the Internet to Solve Your Real Estate Problems?2024-02-20T16:18:34-06:00

Strong Quarter for Single-Family Built-for-Rent Construction


Single-family built-for-rent construction accelerated at the end of 2023, as builders sought to add additional rental housing in a market facing elevated mortgage interest rates. According to NAHB’s analysis of data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, there were approximately 22,000 single-family built-for-rent (SFBFR) starts during the fourth quarter of 2023. This is more than 29% higher than the fourth quarter of 2022. Over the last four quarters, 75,000 such homes began construction, which is almost a 9% increase compared to the 69,000 estimated SFBFR starts in the four quarter prior to that period. The SFBFR market is a source of inventory amid challenges over housing affordability and downpayment requirements in the for-sale market, particularly during a period when a growing number of people want more space and a single-family structure. Single-family built-for-rent construction differs in terms of structural characteristics compared to other newly-built single-family homes, particularly with respect to home size. However, investor demand for single-family homes, both existing and new, has cooled with higher interest rates. Nonetheless, builders continue to build smaller projects of built-for-rent homes for their own operation. Given the relatively small size of this market segment, the quarter-to-quarter movements typically are not statistically significant. The current four-quarter moving average of market share (7.9%) is nonetheless higher than the historical average of 2.7% (1992-2012). Importantly, as measured for this analysis, the estimates noted above only include homes built and held by the builder for rental purposes. The estimates exclude homes that are sold to another party for rental purposes, which NAHB estimates may represent another five percent of single-family starts based on industry surveys. The Census data notes an elevated share of single-family homes built as condos (non-fee simple), with this share averaging more than 5% over recent quarters. Some, but certainly not all, of these homes will be used for rental purposes. Additionally, it is theoretically possible some single-family built-for-rent units are being counted in multifamily starts, as a form of “horizontal multifamily,” given these units are often built on a single plat of land. However, spot checks by NAHB with permitting offices indicate no evidence of this data issue occurring. Nonetheless, demand by investors for single-family rental units, new and existing, has cooled in recent quarters as financial conditions have tightened. This will act to lower the share of homes sold to investors. With the onset of the Great Recession and declines for the homeownership rate, the share of built-for-rent homes increased in the years after the recession. While the market share of SFBFR homes is small, it has clearly expanded. Given affordability challenges in the for-sale market, the SFBFR market will likely retain an elevated market share even as the sector cools in the quarters ahead. ‹ Residential Building Material Price Increase to Start 2024Tags: economics, home building, housing, SFBFR, single-family

Strong Quarter for Single-Family Built-for-Rent Construction2024-02-19T08:17:04-06:00

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