In the third quarter of 2021, effective interest rates increased on all four categories of loans tracked in NAHB’s Survey on Acquisition, Development & Construction (AD&C). This result reverses a general downward trend that had prevailed since the third quarter of last year. In the third quarter of 2021, the average effective rate (based on rate of return to the lender over the assumed life of the loan taking both the contract interest rate and initial fee into account) increased from 6.15 in the second quarter of 2021 to 6.50 percent in the third quarter of 2021 on loans for land acquisition, from 7.15 to 8.33 percent on loans for land development, from 8.09 to 8.55 percent on loans for pre-sold single-family construction, and from 7.40 to 8.37 percent on loans for speculative single-family construction. Changes in the effective rate may be due to changes in either the contract interest rate, or in the initial points charged on the loan. On three categories of AD&C loans, the average contract rate and average points both increased in the third quarter. On land acquisition loans, the contract rate increased from 4.63 to 4.74 percent while the initial points increased from 0.69 to 0.88. On development loans, the contract rate increased from 4.63 to 4.74 percent while the points increased from 0.64 to 0.89. And on loans for pre-sold single-family construction, the contract rate increased from 4.32 to 4.49 percent while the points increased from 0.54 to 0.77. On the remaining category of AD&C loans (for speculative single-family construction) a reduction in the average contract rate—from 4.94 to 4.85 percent—was more than offset by a substantial increase in the initial points charged—from 0.66 to 0.87 percent. The NAHB survey also produces a net easing index that summarizes the change in credit conditions on AD&C loans, similar to the net easing index constructed from the Federal Reserve’s survey of senior loan officers (SLOOS). In the third quarter of 2021, the NAHB and Fed indices were in close agreement with each other, both indicating a modest easing of credit. The NAHB index stood at 11.0 while the Fed index was 9.4. These results are quite similar to those from the second quarter, when the NAHB index was 9.7 and the Fed index was 7.0. The NAHB net easing index uses information from questions that ask builders and developers if availability of credit has gotten better, worse, or stayed the same since the previous quarter. In the third quarter of 2021, 13 percent of the NAHB builders said availability of credit for land acquisition had gotten better, compared to 6 percent who said it had gotten worse. For land development, 14 percent said credit conditions improved, compared to 7 percent who said it had gotten worse. Finally, 21 percent of builders reported that the availability of credit for single-family construction had improved, compared to only two percent who said it had gotten worse. Availability and rates on loans for residential development are of particular interest in the current environment, where home builders are experiencing record shortages of buildable lots. Related ‹ Gains for Custom Home BuildingTags: ad&c lending, ad&c loans, ADC, construciton loans, construction lending, credit conditions, economics, home building, housing, interest rates, lending, single-family
By Robert Dietz on November 19, 2021 • NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates custom home building matched the best quarter for construction starts since the spring of 2008 during the third quarter of 2021. There were 56,000 total custom building starts during the third quarter of the year. This marks a 5.7% gain from the third quarter of 2020. Over the last four quarters, custom housing starts totaled 190,000 units, an 8% gain from the prior four-quarter total. Despite these gains, the market share for custom home building has declined as other forms of home building have expanded more rapidly. As measured on a one-year moving average, the market share of custom home building, in terms of total single-family starts, held steady at 16.6%. This is down from a cycle high 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. Related ‹ Multifamily Missing Middle Production LagsTags: custom, custom building, custom home building, home building, housing, single-family
Sentiment on the production of new and occupancy in existing multifamily housing improved in the third quarter, according to the latest results from NAHB’s Multifamily Market Survey (MMS). The MMS produces two main indices. The Multifamily Production Index (MPI) increased five points from the previous quarter to 53, while the Multifamily Occupancy Index (MOI) also increased by five points, to 75. That’s the highest reading for the MOI since its inception in 2003. The MPI is a weighted average of three component indices measuring developer sentiment about production in different segments of the multifamily market: low-rent apartments supported by low-income tax credits or other government subsidy programs; market-rate rental apartments built to be rented at an unsubsidized market-clearing price; and for-sale units (i.e., multifamily condominiums). Each component index lies on a scale on of 0 to 100, where a number above 50 indicates that more respondents report conditions are improving than report conditions are getting worse. All three MPI component indices increased in the third quarter. The component for low-rent apartments increased six points to 55, the component for market rate rental units rose nine points to 60; and the condo component posted a two-point gain to 47. Similarly, the MOI measures the multifamily housing industry’s sentiment on occupancy in existing apartments. The MOI is also a weighted average of three components: for occupancy in class A, B, and C apartments. Again, each component index lies on a scale from 0 to 100, with a break-even point at 50, where numbers above 50 indicate rising occupancy. Two of the MOI’s components increased in the third quarter. The index for occupancy in class A apartments increased 8 points to 77, while the index for class B apartments increased 4 points to 75. Although the index for class C apartments declined by 3 points, to 70, all three component indices remain well above the break-even point of 50. Moreover, as noted above, the current MOI of 75 is the highest the overall occupancy index has been since its inception. Strong demand and limited inventory of all types of housing are keeping occupancy strong in multifamily properties across the country. The same factors are supporting production of new multifamily properties, although developers continue to deal with very significant supply-side challenges, like finding enough labor, materials and land to build on. The record-level MOI is consistent with the strong multifamily occupancy rates reported by the Census Bureau, which are now higher than they’ve been since the 1980s. And an MPI back above 50 is consistent with multifamily housing starts, which have been running at a 460,000-plus annualized rate through the first three quarters of 2021—which should make 2021 the strongest year for multifamily production since the tax policy-driven surge of the 1980s. As the economy continues to reopen, housing demand is rising in higher density markets, supporting both multifamily occupancy and production. For complete results from the Multifamily Market Survey, including the history of each index and its components back to the survey’s inception in 2003, please visit NAHB’s MMS web page. Related ‹ Year-over-Year Gains for Townhouse ConstructionTags: MMS, MOI, mpi, multifamily, multifamily market, multifamily market survey, multifamily occupancy index, multifamily production index, occupancy
Confidence in the market for new multifamily housing improved in the third quarter, according to results from the Multifamily Market Survey (MMS) released today by NAHB.
By Robert Dietz on November 18, 2021 • According to NAHB analysis of the most recent Census data of Starts and Completions by Purpose and Design, townhouse construction in the third quarter of 2021 continued to show year-over-year construction increases. As housing demand has shifted to more suburban and exurban areas and housing affordability headwinds persist, medium-density construction lagged for much of 2020. However, demand for medium density neighborhoods is now returning as the economy reopens. During the third quarter of 2021, single-family attached starts totaled 35,000, which is 16.7% higher than the third quarter of 2020. Over the last four quarters, townhouse construction starts totaled 143,000 units, 38% higher than the prior four quarter total (104,000). Using a one-year moving average, the market share of new townhouses increased to 12.6% of all single-family starts. This represents a rebound after recent declines. The peak market share of the last two decades for townhouse construction was set during the first quarter of 2008, when the percentage reached 14.6% of total single-family construction. This high point was set after a fairly consistent increase in the share beginning in the early 1990s. Despite relative weakness in 2020, the long-run prospects for townhouse construction remain positive given growing numbers of homebuyers looking for medium-density residential neighborhoods, such as urban villages that offer walkable environments and other amenities, while seeking to avoid high-density communities that depend on mass transit and elevators in the wake of the virus-related lockdowns of the spring of 2020. Related ‹ Interest Rate Increases Drive Refinancing DeclinesTags: economics, home building, housing, single-family attached, starts, townhomes, townhouse
By Litic Murali on November 17, 2021 • The latest Mortgage Bankers Association’s (MBA) weekly application surveys shows a decline for refinancing and an increase in mortgage purchasing. The 30-year fixed-rate mortgage rate increased, averaging close to 3.2 percent for the month and was 3.16 percent in the latest week. In the latest week, total mortgage applications, as proxied by the MBA’s Market Composite Index, decreased by 2.8 percent from the prior week, with the decline caused by a drop in refinancing, owing to its outsized share of total activity (which has historically been the case). In contrast, purchasing activity increased by 1.5 percent. On an unadjusted basis, purchase applications in the latest week was 6 percent lower than what it was one year ago (year-over-year percent change for the same week) and refinancing was 30 percent lower. The latest week marks the 7th consecutive week of both purchasing and refinancing decreasing on a year-to-year basis. Future changes for mortgage data, particularly rates, will partly be attributable to the Federal Reserve’s announcement in the prior month of its intention to taper its monthly MBS purchasing by $5 billion a month, beginning in November. This activity, along with reducing purchasing of Treasuries, is also formally referred to as “tapering”. The refinance share of mortgage activity decreased to 62.9 percent of total applications from 63.5 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 3.2 percent of total applications. Related ‹ Single-Family Built-for-Rent: Best Quarter on RecordTags: Federal Reserve, mortgage bankers association, refinancing
By Robert Dietz on November 17, 2021 • The number of single-family built-for-rent (SFBFR) construction starts reached its highest quarterly volume on record during the third quarter of 2021. The SFBFR market is a way to add inventory amid concerns 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. According to NAHB’s analysis of data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, there were approximately 16,000 single-family built-for-rent starts during the third quarter of 2021. Over the last four quarters, 47,000 such homes began construction, which is a 17.5% gain compared to the 40,000 estimated SFBFR starts for the four prior quarters. 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 (4.1%) remains higher than the historical average of 2.7% (1992-2012) but is down from the 5.8% reading registered at the start of 2013. 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 three to four percent of single-family starts. Indeed, the Census data notes an elevated share of single-family homes built as condos (non-fee simple) in the third quarter, with this share standing at 3.6%. Many of these homes will be used for rental purposes. With the onset of the Great Recession and declines in 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 been trending higher. As more households seek lower density neighborhoods and single-family residences, a growing number will do so from the perspective of renting. Thus, the SFBFR market will likely expand in the quarters ahead. Related ‹ Supply-Side Disruptions Push Single-Family Production Down in OctoberTags: built for rent, economics, rental, SFBFR, single family built for rent, single-family
Single-family housing production lagged in October due to supply-chain effects for materials and ongoing access issues for labor and lots. Overall housing starts decreased 0.7% to a seasonally adjusted annual rate of 1.52 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.
Low existing inventories and strong buyer demand helped push builder confidence higher for the third consecutive month even as supply-side challenges — including building material bottlenecks and lot and labor shortages — remain stubbornly persistent.
The combination of higher home prices, rising construction costs and moderately higher interest rates will exacerbate housing affordability conditions and increasingly push many prospective buyers out of the market in the coming months.