Lot Values Trend Higher

2024-07-10T07:57:49-05:00

Lot values for single-family detached spec homes continued to rise, with national values reaching a new high in 2023, according to NAHB’s analysis of the Census Bureau’s Survey of Construction (SOC) data. The U.S. median lot value for single family detached for-sale homes started in 2023 stood at $58,000, with half of the lots valued higher and half of the lots valued lower than the median. Even though lot values continued to rise, overall U.S. inflation averaged 4.1% in 2023 and outpaced lot appreciation. When adjusted for inflation, median lot values remain below the record levels of the housing boom of 2005-2006. At that time, half of the lots were valued at or over $43,000, which is equivalent to about $65,000 when converted into inflation-adjusted 2023 dollars. It is important to keep in mind that new spec home construction experienced dramatic shifts towards smaller lots in recent years. Since the housing boom of 2005-2006, the share of lots under 1/5 of an acre rose from 48% in 2005 to 65% in 2023. So even though current median lot values are not record high in real terms, they reflect a very different mix of lots compared to the housing boom years or even a decade ago.  The fact that lot values keep rising as their sizes shrink reflects ongoing challenges builders face in obtaining lots. Even though lot shortages are not quite as widespread as they were in 2021, their current incidence recorded by the May 2023 survey for the NAHB/Wells Fargo Housing Market Index (HMI) is the second highest on record since NAHB began collecting this information in 1997. There is a substantial variation in lot values and appreciation across the US regions. New England has been a division with the most expensive lots for decades. Most recently, it has been in a league of its own with its median lot prices more than tripling the national medians in 2023. As of the latest SOC data, half of all single-family detached (SFD) spec homes started in New England in 2023 were built on lots valued at or over $200,000. New England is known for strict local zoning regulations that often require very low densities. As a matter of fact, the median lot size for single-family detached spec homes started in New England in 2023 was almost 3 times the national median. Therefore, it is not surprising that typical SFD spec homes in New England are built on some of the largest and most expensive lots in the nation. The Pacific division has the smallest lots. However, its median lot value reached $147,000 in 2023, the second highest median in the nation. As a result, Pacific division lots stand out for being the most expensive in the nation in terms of per acre costs. The neighboring Mountain division hit a new record high, with half of the lots for SFD spec home starts valued at or more than $90,000. This made the Mountain division lots the third most expensive in the US. The East South Central and South Atlantic divisions are home to some of the least expensive spec home lots in the nation. The East South Central division recorded the lowest median lot value, with half of SFD spec homes started in 2023 registering lot values of $46,000 or less. Typical lots here are also significantly larger than the national median, thus defining some of the most economical lots, as well as lowest per acre costs in the US. The neighboring South Atlantic is the only other division where the median lot value ($49,000) is below the national median of $58,000. Lots in the West South Central, which includes Texas, appreciated dramatically during the last decade.  In 2012, half of the SFD spec homes were started on lots valued at or below $30,000, half of the current median of $61,000.  For this analysis, median lot values were chosen over averages, since averages tend to be heavily influenced by extreme outliers. In addition, the Census Bureau often masks extreme lot values on the public use SOC dataset making it difficult to calculate averages precisely, but medians remain unaffected by these procedures. This analysis is limited to single-family speculatively built homes by year started and with reported sales prices. For custom homes built on an owner’s land with either the owner or a builder acting as the general contractor, the corresponding land values are not reported in the SOC. Consequently, custom homes are excluded from this analysis. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Lot Values Trend Higher2024-07-10T07:57:49-05:00

Share of Smaller Lots Is at New High

2024-07-09T08:25:49-05:00

Close to two thirds (65%) of new single-family detached homes sold in 2023 were built on lots under 9,000 square feet, which is less than 1/5 of an acre. According to the latest Survey of Construction (SOC), this is the highest share on record and reflects stark changes in the lot size distribution over the last two decades. In 1999, when the Census Bureau started tracking these series, less than half (46%) of new for-sale single-family detached homes were occupying lots of that size.A shift in speculatively built (or spec) home building towards smaller lots continued despite the pandemic-triggered suburban flight and presumed shifts in preferences towards more spacious living. The steadily rising share of smaller lots undoubtedly reflects unprecedented lot shortages confronted by home builders during the pandemic housing boom, as well as their attempts to make new homes more affordable. Zooming in on lots smaller than 7,000 square feet (or 0.16 of an acre) reveals another record reading, as share of these lots reached 40% in 2023. In sharp contrast, only 28% of new single-family detached spec homes were built on lots of that size in 1999, when the Census started tracking these data. A persistent shift towards smaller lots, however, is a more recent phenomenon. The share of lots under one fifth of an acre was fluctuating around 48%, never crossing the 50% mark, until 2011. It was only during the last decade that the share rose rapidly, from 50% in 2011 to 61% right before the pandemic and gained an additional 4 percentage points during the last four years. A closer look at the lot size distribution since 2010 shows that most dramatic shifts took place at the lowest end, with lots under 0.16 acres increasing their share by 13 percentage points. In 2010, 27% of all sold single family detached homes occupied lots under 0.16 acres and an additional 20% were on lots between 0.16 and 0.25 acres. Fast forward to 2023, these shares increased to 40% and 25%, respectively. At the other end of the lot size distribution, the share of spec homes built on larger lots exceeding half an acre shrunk from 14% in 2010 to 9% in 2023. The share of lots measuring between a quarter and half an acre declined from 24% to 18% over that time span. The median lot size of a new single-family detached home sold in 2023 now stands at 8,400 square feet, or just under one-fifth of an acre. This is slightly larger but statistically not different from the lowest on record median of 8,177 square feet set a year before the COVID-19 pandemic. While the nation’s production of spec homes shifts towards smaller lots, the regional differences in lot sizes persist. Looking at single-family detached spec homes started in 2023, the median lot size in New England is almost 3 times larger than the national median. New England is known for strict local zoning regulations that often require very low densities. Therefore, it is not surprising that single-family detached spec homes started in New England are built on some of the largest lots in the nation, with half of the lots exceeding 0.56 of an acre. The East South Central division is a distant second on the list with the median lot occupying just under a third of an acre. In the South, the West South Central division stands out for starting half of single-family detached spec homes on lots under 0.15 acres. This is half the size of typical lots in the neighboring East South Central division. The Pacific division where densities are high and developed land is scarce has the smallest lots, with half of the lots being under 0.14 acres. The bordering Mountain division also reports typical lots smaller (0.16 acres) than the national median. The analysis above is limited to single-family detached speculatively built homes. Custom homes built on an owner’s land with either the owner or a builder acting as the general contractor do not involve the work of a professional land developer subdividing a property. Therefore, in the case of custom homes, lots refer to an owner’s land area rather than lots in a conventional sense. Nevertheless, the SOC reports lot sizes for custom homes and shows that they tend to have larger lots. The median lot size for custom single-family detached homes started in 2023 is one acre. For the regional analysis, the median lot size is chosen over average since averages tend to be heavily influenced by extreme outliers. In addition, the Census Bureau often masks extreme lot sizes and values on the public use SOC dataset making it difficult to calculate averages precisely, but medians (as the midpoint of a frequency distribution) remain unaffected by these procedures. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Share of Smaller Lots Is at New High2024-07-09T08:25:49-05:00

Housing Affordability Challenges Leads to Frustrated Buyer Price Expectations

2024-07-05T18:20:05-05:00

There is a mismatch between the prices of homes being built, and the prices home buyers expect to pay, according to recent surveys from NAHB and the U.S. Census Bureau. While 38% of buyers expect to pay less than $250,000 for  their next home (and 19% expect to pay less than $150,000), only 5% of homes that started construction in 2023 are actually priced under $250,000 (and a negligible count are priced under $150,000). Results from NAHB’s latest home buyer preference survey were published in the 2024 edition of What Home Buyers Really Want. The survey collected information from a representative sample of 3,008 recent as well as prospective home buyers during 2023, including the information on the price they expect to pay for their next home (or did pay if they purchased one recently). The median price they expected to pay was about $307,000. Only 20% expected to pay $500,000 or more. In contrast, NAHB tabulation of recently released data from the Census Bureau’s Survey of Construction shows that the median price of single-family homes built for sale and started in 2023 was $425,000. The vast majority—95%—were priced at $250,000 or more. A substantial share, 37%, were priced at $500,000 or more. There is an obvious pattern to the above chart. Below $250,000, the red bars are longer than the blue bars, indicating that the share of prospective and recent buyers exceeds the share of new homes being built in those price ranges. Above $250,000, the opposite is true. The  blue bars are longer than the red bars, indicating that the share of homes being built exceeds the share of buyers in the market at those prices. The difference is especially stark at prices below $150,000, where 19% of buyers are shopping for a home and almost no homes are being built. Part of the explanation may be that the lower end of the market is differentially served by existing homes. However, there are limits to how well existing homes can satisfy the demands of prospective buyers with modest incomes. As previous posts have noted, the supply of existing homes has been running at historically low levels for several years and prices of existing homes have been setting record highs. Indeed, the median price of an existing home in May was well over $400,000. Another large part of the explanation for the actual vs. expected price mismatch is the cost of new home construction. Builders know that a potential market exists for new homes priced under $150,000; they just can’t build homes at such a low cost. All the inputs to residential construction interact to raise the cost of new home construction. Residential construction wages continue to rise. Although prices of many residential building materials have been stable recently, the stability comes after massive increases in the two years following the onset of the COVID pandemic. A shortage of lots has been a chronic issue since the home building industry started to recover from the Great Recession. Moreover, regulatory costs can be substantial. NAHB’s latest study on the topic shows regulation accounting for $93,870 of the cost of an average new single-family home. The largest regulatory cost impact, $24,414, comes from changes to building codes over the past 10 years. This isfollowed by $12,184 in fees paid by the builder after purchasing the lot, $11,791 in regulatory costs incurred by the developer during site work, $10,854 in the value of land that must be purchased and dedicated to the government or otherwise left unbuilt, and $10,794 in required architectural details that exceed what the builder would ordinarily do. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Housing Affordability Challenges Leads to Frustrated Buyer Price Expectations2024-07-05T18:20:05-05:00

Private Residential Construction Spending Dips in May 

2024-07-01T13:22:48-05:00

Private residential construction spending was down 0.2% in May after surging 0.9% in the prior month, according to the Construction Spending. Nevertheless, spending remained 6.5% higher compared to a year ago.  The monthly decline in total private construction spending for May is largely due to reduced spending on single-family construction. Spending on single-family construction fell by 0.7% in May, following a dip of 0.2% in April. Elevated mortgage interest rates have cooled the housing market, dampening homebuilder confidence and new home starts. Despite this, spending on single-family construction was still 13.8% higher than it was a year earlier.   Multifamily construction spending stayed flat in May after a dip of 0.4% in April. Year-over-year, spending on multifamily construction declined 4.6%, as an elevated level of apartments under construction is being completed. Private residential improvement spending increased 0.3% in May and was 2.8% higher compared to a year ago.   The NAHB construction spending index is shown in the graph below (the base is March 2000). The index illustrates how spending on single-family construction experienced solid growth since May 2023 under the pressure of supply-chain issues and elevated interest rates. Multifamily construction spending growth slowed after the peak in May 2023, while improvement spending has slowed since mid-2022.   Spending on private nonresidential construction was up 4.1% over a year ago. The annual private nonresidential spending increase was mainly due to higher spending for the class of manufacturing ($39.1 billion), followed by the power category ($1 billion).  Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Private Residential Construction Spending Dips in May 2024-07-01T13:22:48-05:00

2023 New Single-Family Starts by Census Division

2024-06-27T08:20:18-05:00

New single-family starts have trended higher since 2012, reaching a post-pandemic peak of 1,133,145 units in 2021. During 2022 and 2023, elevated housing prices and persistently high mortgage rates have dampened housing market activity. According to NAHB analysis of the 2023 Survey of Construction (SOC), new single-family starts decreased in 2023 for the second consecutive year. Nationally, 946,536 new single-family units started construction in 2023, 7% fewer than the number of units started in 2022. This marked the lowest annual count since the COVID-19 pandemic. Among all nine Census divisions, the South Atlantic, West South Central, and Mountain Divisions led the way with the most new single-family units started in 2023. These three divisions represent 20 states and Washington, D.C., approximately 41% of the United States, but account for more than two-thirds of the total new single-family housing starts. In addition, there were 93,831 new single-family units started in the Pacific Division (10% of total starts) and 75,690 in the East North Central Division (8%) in 2023. The other four divisions, including East South Central, West North Central, Middle Atlantic, and New England, accounted for the remaining 17% of the total new single-family housing starts. In 2023, six out of the nine divisions had negative annual growth rates. The New England Division was the only division that had a positive annual growth rate, while the Pacific and West South Central Divisions remained virtually unchanged in 2023. The Mountain Division reported the largest drop among the nine divisions with a 19% decrease, followed by the Middle Atlantic Division with a 17% decrease and the East North Central Division with a 12% decrease. Compared to the previous year, four out of the nine divisions had a deceleration in 2023: Mountain, Middle Atlantic, East North Central, and East South Central. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

2023 New Single-Family Starts by Census Division2024-06-27T08:20:18-05:00

Single-Family Permits Holding Steady in April 2024  

2024-06-18T09:20:35-05:00

Over the first four months of 2024, the total number of single-family permits issued year-to-date (YTD) nationwide reached 336,124. On a year-over-year (YoY) basis, this is an increase of 25.3% over the April 2023 level of 268,205. Year-to-date ending in April, single-family permits were up in all four regions. The range of permit increase spanned 36.4% in the West to 12.6% in the Northeast. The Midwest was up by 27.2% and the South was up by 22.7% in single-family permits during this time. For multifamily permits, three out of the four regions posted declines. The Northeast, the only region to post an increase, was up by 51.2%, while the West posted a decline of 36.4%, the South declined by 27.9%, and the Midwest declined by 11.6%. Between April 2024 YTD and April 2023 YTD, 48 states and the District of Columbia posted an increase in single-family permits. Rhode Island (-7.7%) and Alaska (-17.3%) reported declines in single-family permits. The range of increases spanned 63.8% in Arizona to 3.2% in Hawaii. The ten states issuing the highest number of single-family permits combined accounted for 64.9% of the total single-family permits issued. Texas, the state with the highest number of single-family permits, issued 56,832 permits over the first four months of 2024, which is an increase of 29.4% compared to the same period last year. The succeeding highest state, Florida, was up by 17.1% while the next highest, North Carolina, posted an increase of 17.2%. Year-to-date ending in April, the total number of multifamily permits issued nationwide reached 157,076. This is 20.1% below the April 2023 level of 196,589. Between April 2024 YTD and April 2023 YTD, 15 states recorded growth in multifamily permits, while 35 states and the District of Columbia recorded a decline. Oklahoma (+247.5%) led the way with a sharp rise in multifamily permits from 335 to 1,164, while Oregon had the biggest decline of 75.4% from 3,394 to 834. The ten states issuing the highest number of multifamily permits combined accounted for 65.8% of the multifamily permits issued. Over the first four months of 2024, Texas, the state with the highest number of multifamily permits issued, experienced a decline of 27.9%. Following closely, the second-highest state in multifamily permits, Florida, saw a decline of 33.2%. New York, the third largest multifamily issuing state, increased by 130.4%. At the local level, below are the top ten metro areas that issued the highest number of single-family permits. For multifamily permits, below are the top ten local areas that issued the highest number of permits. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Single-Family Permits Holding Steady in April 2024  2024-06-18T09:20:35-05:00

Single-Family and Multifamily Production Headed in Opposite Directions Across Geographies

2024-06-04T09:15:24-05:00

Fueled by a lack of existing inventory and pent-up demand, single-family permit growth is occurring across all tracked geographic regions of the nation. The opposite holds true for the multifamily sector, according to the latest findings from the National Association of Home Builders (NAHB) Home Building Geography Index (HBGI) for the first quarter of 2024. After continued declines in the growth rates of the single-family HBGI, all markets moved into positive territory for single-family construction. This marks the first time since the first quarter of 2021 for which all regions are showing year-over-year growth. Single-family growth rates declined to lows in the first quarter of 2023, but as lack of existing inventory and pent-up demand started to have a larger effect, single-family construction moved upwards over the year. The highest growth was in large metro – core counties at 13.5% while the smallest was in micro counties, at 1.5%. Looking at single-family HBGI market shares, small metro – core counties continued to have the largest market share at 28.8%. The market share for small metro – core counties has been hovering around 29% market share since the pandemic. The largest shift in market share since the first quarter of 2020 has been seen in large metro – core counties, falling 2.2 percentage points from 18.3% to 16.1%. Over this same period, small metro – outlying counties have seen the largest increase, up 1.2 percentage points from 8.8% to 10.0%. In the multifamily sector, the HBGI year-over-year changes turned negative for all markets in the first quarter, the first time in the HBGI data. The largest decline for multifamily was in large metro – core counties, down 24.1%, while the smallest decline was in non metro/micro counties down 4.7%. Multifamily construction has cooled as there are currently over 900,000 multifamily units under construction, the highest level since 1973. Tighter financial conditions are also making it more difficult for builders to start multifamily projects.    Multifamily market shares showed some major changes over the quarter, as the largest multifamily market, large metro – core counties, fell 0.3 percentage points over the quarter down to 37.6%. The large metro – suburban counties market share increased the most over the quarter, up 0.5 percentage points to 26.8%. The first quarter of 2024 HBGI data can be found at http://nahb.org/hbgi. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Single-Family and Multifamily Production Headed in Opposite Directions Across Geographies2024-06-04T09:15:24-05:00

Private Residential Construction Spending Edges Up in April 

2024-06-03T11:15:12-05:00

Private residential construction spending rose 0.1% in April, following a 0.4% decline in March. The seasonally adjusted annual pace reached $890.4 billion. Total private residential construction spending is 8% higher compared to a year ago.   This monthly increase in total construction spending is attributed to more single-family construction and improvements. Spending on single-family construction inched up 0.1% in April, the twelfth consecutive month of increases. Compared to a year ago, spending on single-family construction was 20.4% higher.   Private residential improvement spending increased 0.3% in April, but it was 3.5% lower compared to a year ago. Multifamily construction spending declined 0.3% in April after a dip of 0.2% in the prior month. However, spending on multifamily construction was 2.3% higher than a year ago, as a large stock of multifamily housing is under construction. Nonetheless, multifamily construction spending will decline in the quarters ahead after an elevated level of apartments under construction is completed.   The NAHB construction spending index is shown in the graph below (the base is March 2000). The index illustrates how spending on single-family construction experienced solid growth since May 2023 under the pressure of supply-chain issues and elevated interest rates. Multifamily construction spending has slowed since late 2023, while improvement spending pace has decreased since mid-2022.   Spending on private nonresidential construction was up 8.3% over a year ago. The annual private nonresidential spending increase was mainly due to higher spending for the class of manufacturing ($33.2 billion), followed by the power category ($0.8 billion). Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Private Residential Construction Spending Edges Up in April 2024-06-03T11:15:12-05:00

Multifamily Absorption Rates Falls to Decade Low as Completions Remain Elevated

2024-05-30T11:19:36-05:00

The Census Bureau’s latest release of the Survey of Market Absorption of New Multifamily Units (SOMA) estimates that 42% of 91,060 unsubsidized apartments completed in the fourth quarter of 2023 were absorbed (rented) within the first 3 months following completion. For condominiums, 56% of the estimated 4,915 units completed in the fourth quarter of 2023 were absorbed (purchased) in the first three months following completion. All statistics from the SOMA refer to apartments/condos in newly constructed buildings with five units or more. Apartments For apartments, the non-seasonally adjusted absorption rate for the fourth quarter was ten percentage points lower than the third, from 52% to 42%. Over the year, the rate was down 14 percentage points. The absorption rate has fallen 35 percentage points after peaking at 75% in the third quarter of 2021 as newly constructed multifamily units started entering the market. The number of estimated unsubsidized apartments completed in the fourth quarter was 91,060 marking only the third time in the data that completions were above 90,000. The other occurrences were in the third quarter of 2020 (93,750) and the second quarter of 2023 (95,860). Completions were up 4.0% from the third quarter of 2023 and up 13.4% from the fourth quarter of 2022. Condominiums The condominium absorption rate fell to 56%, the lowest level since the second quarter of 2019 (54%). The absorption rate has fallen 23 percentage points from the start of the year as condo completions moved upwards.   Condominium completions were at an estimated level of 4,915 in the fourth quarter of 2023, up 3.0% from the previous year and up 9.6% from the third quarter of 2023. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Multifamily Absorption Rates Falls to Decade Low as Completions Remain Elevated2024-05-30T11:19:36-05:00

Single-Family Permits Up in March 2024  

2024-05-14T09:19:47-05:00

Over the first three months of 2024, the total number of single-family permits issued year-to-date (YTD) nationwide reached 241,311. On a year-over-year (YoY) basis, this is an increase of 25.9% over the March 2023 level of 191,695. Year-to-date ending in March, single-family permits were up in all four regions. The range of permit increase spanned 38.0% in the West to 12.5% in the Northeast. The Midwest was up by 29.3% and the South was up by 22.7% in single-family permits during this time. For multifamily permits, three out of the four regions posted declines. The Northeast, the only region to post an increase, was up by 49.0%, while the South posted a decline of 35.9%, the West declined by 32.6%, and the Midwest declined by 8.6%. Between March 2024 YTD and March 2023 YTD, 47 states posted an increase in single-family permits. Massachusetts, Rhode Island, Alaska, and the District of Columbia reported declines in single-family permits. The range of increases spanned 90.5% in Montana to 0.8% in New Jersey. The ten states issuing the highest number of single-family permits combined accounted for 65.5% of the total single-family permits issued. Texas, the state with the highest number of single-family permits, issued 40,651 permits over the first three months of 2024, which is an increase of 34.7% compared to the same period last year. The succeeding highest state, Florida, was up by 15.1% while the next highest, North Carolina, posted an increase of 15.5%. Year-to-date ending in March, the total number of multifamily permits issued nationwide reached 117,695. This is 22.8% below the March 2023 level of 152,417. Between March 2024 YTD and March 2023 YTD, 15 states recorded growth in multifamily permits, while 35 states and the District of Columbia recorded a decline. Kansas (+282.7%) led the way with a sharp rise in multifamily permits from 336 to 1,286, while North Dakota had the greatest decline of 92.8% from 429 to 31. The ten states issuing the highest number of multifamily permits combined accounted for 64.9% of the multifamily permits issued. Over the first three months of 2024, Texas, the state with the highest number of multifamily permits issued, experienced a decline of 36.7%. Following closely, the second-highest state in multifamily permits, Florida, saw a decline of 44.7%. New York, the third largest multifamily issuing state, increased by 120.9%. At the local level, below are the top ten metro areas that issued the highest number of single-family permits. For multifamily permits, below are the top ten local areas that issued the highest number of permits. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Single-Family Permits Up in March 2024  2024-05-14T09:19:47-05:00

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