Single-Family Construction Slows in Post-Covid Hot Markets


By Na Zhao on December 6, 2022 • The most recent Home Building Geography Index (HBGI) shows that single-family home building slowed down its pace in the exurban areas, which experienced strong growth since the pandemic. Both high mortgage rates and supply-chain disruptions have put a damper on the housing market. The growth rate of single-family construction in large metro outlying counties went down to negative 4.4% in the third quarter of 2022 from 31.9% in the third quarter of 2021. Meanwhile the growth rate in smaller metro outlying countries fell 30.6 percentage points, from 26.5% to negative 4.1%. NAHB’s HBGI shows that single-family home building in urban core areas in both large and small metro areas saw negative growth rates in the third quarter of 2022, while rural counties, including both micro counties and non-metro/micro counties, had positive year-over-year growth rate. Higher housing prices in urban core areas make it more sensitive to hikes of interest rates, compared to those outside the urban cores. Housing demand continued shifting from these higher density core areas to low density markets, where homes are larger and more affordable in the third quarter of 2022. At the beginning of the pandemic, homebuyers desired more personal space for the work-from-home and remote learning models. Declines in housing affordability in high cost and highly regulated markets also drove homebuyers to low-density outer markets, which have a larger share of affordable homes. From the 1st quarter of 2020 to the 3rd quarter of 2022, the market shar for single-family home building in large metro core and inner suburbs has fallen from 44% to 41.3%. In contrast, single-family home building in outer suburbs in large and medium sized metros has increased from 18% in the 1st quarter of 2020 to 19% The Q3 2022 HBGI data can be found at Related ‹ Builders Are Cutting Prices & Offering Incentives, But It’s Not 2008

Single-Family Construction Slows in Post-Covid Hot Markets2022-12-06T09:19:21-06:00

Builders Are Cutting Prices & Offering Incentives, But It’s Not 2008


In November of 2022, 36 percent of single-family home builders reported reducing their prices, and 59 percent were offering special sales incentives.  These percentages may seem relatively high—and in fact they have increased significantly since July of this year—but they are nowhere near as high as they were during the 2007-2008 financial crisis. Questions on sales incentives have been a regular topic on the monthly survey for the NAHB/Wells Fargo Housing Market Index (HMI) since the 1990s.  The questions on price reductions were introduced during the financial crisis and have been revisited several times since then. In July of 2022, 13 percent of builders reported that they had reduced home prices during the past month to bolster sales volume and/or limit cancellations.  This subsequently increased to 19 percent in August, 26 percent in September, and 36 percent in November.  Even at 36 percent, however, the current percentage doesn’t seem terribly high compared to May 2007 through March of 2008, when the share of builders cutting prices was consistently 48 percent of higher—as high as 59 percent in October of 2007. Among builders who did reduce their home prices, the average reduction was 5 percent in July of 2022, and 6 percent in the three surveys conducted since then.  In the 2007-2008 crisis period, however, the average monthly reduction in house price was consistently 7 percent or higher—as high as 10 percent in February of 2008. Sales incentives (price discounts, free upgrades, etc.) have long been a standard part of the business for some home builders.  On the other hand, some builders never offer these types of  incentives—either because they are pure custom builders, rely on word of mouth for marketing, prefer to let their customer make the first offer, or otherwise have business models they deem incompatible with incentives. .When the question was first asked In May of 1995, 74 percent of builders reported offering sales incentives.  The percentage never fell below 50 until July of 2022, when it dipped to 43.  Although many builders offer incentives as a matter or routine, the share does fluctuate somewhat in response to market conditions.  During the latter part of 2022, the share of builders offering incentives increased from 43 percent in July to 53 percent in September and 59 percent in November.  In the 2007-2008 crisis period, however, the share offering incentives was usually well over 70 percent—as high as 86 percent in December of 2008. In November of 2022, five specific types of sales incentives were particularly common, several of them directly related to housing finance: discounting home prices/reducing margins, paying closing costs or fees, offering options or upgrades at no or reduced cost, mortgage rate buy-downs, and absorbing financing points for the buyers.  The full list is shown below: Some reduction in new home prices and increased use of incentives is what we would expect, given the current economic environment of rising interest rates, declining  prices on existing homes,  weakening builder confidence, and contracting production of new housing .   However, many more builders were offering incentives and cutting house prices (and the cuts were deeper) during the severe housing downturn of 2007 and 2008. Related ‹ U.S. Added 263,000 Jobs in NovemberTags: economics, home building, housing, incentives, price cuts, price reductions

Builders Are Cutting Prices & Offering Incentives, But It’s Not 20082022-12-05T15:18:42-06:00

U.S. Added 263,000 Jobs in November


In November, job growth slowed slightly from the previous month but still showed strength despite tight monetary policy. The unemployment rate was unchanged at 3.7% in November as the number of persons in the labor force decreased for the third straight month. Total nonfarm payroll employment increased by 263,000 in November, following a gain of 284,000 in October, as reported in the Employment Situation Summary. It marks the smallest monthly job gain since April 2021. The estimate for September was revised down by 46,000 from +315,000 to +269,000, while the October increase was revised up by 23,000, from +261,000 to +284,000. In the first eleven months of 2022, about 4.3 million jobs were created, and monthly employment growth averaged 392,000 per month, compared with a 562,000 monthly average gain in 2021. The unemployment rate remained unchanged at 3.7% in November. The number of unemployed persons was essentially unchanged at 6.0 million, while the number of employed persons decreased by 138,000. Meanwhile, the labor force participation rate, the proportion of the population either looking for a job or already with a job, edged down 0.1 percentage point to 62.1% in November, reflecting the increase in the number of persons not in the labor force (+359,000) and the decrease in the number of persons in the labor force (-186,000). Moreover, the labor force participation rate for people who aged between 25 and 54 decreased to 82.4%. Both of these two rates are still below their pre-pandemic levels in the beginning of 2020, and are not fully recovered from the COVID-19 pandemic. For industry sectors, leisure and hospitality (+88,000), health care (+45,000), and government (+42,000) had notable job gains in November, while employment in retail trade (-30,000) and in transportation and warehousing (-15,000) declined. Employment in the overall construction sector rose by 20,000 in November, following a 9,000 gain in October. Residential construction gained 3,900 jobs, while non-residential construction employment gained 16,300 jobs in November. Residential construction employment currently exceeds its level in February 2020, while 87% of non-residential construction jobs lost in March and April have now been recovered. Residential construction employment now stands at 3.2 million in November, broken down as 903,000 builders and 2.3 million residential specialty trade contractors. The 6-month moving average of job gains for residential construction was 4,617 a month. Over the last 12 months, home builders and remodelers added 105,000 jobs on a net basis. Since the low point following the Great Recession, residential construction has gained 1,204,500 positions. In November, the unemployment rate for construction workers declined by 0.8 percentage points to 4.6% on a seasonally adjusted basis. The unemployment rate for construction workers has been trending lower, after reaching 14.2% in April 2020, due to the housing demand impact of the COVID-19 pandemic. Related ‹ AD&C Balances Continue to RiseTags: employment, labor force, labor force participation rate, residential construction employment

U.S. Added 263,000 Jobs in November2022-12-02T11:18:17-06:00

AD&C Balances Continue to Rise


By Robert Dietz on December 1, 2022 • Residential construction loan volume reached a post-Great Recession high during the third quarter of 2022, as home building activity and new home sales remained weak. Outstanding builder loan balances are rising as development debt is being held longer as new homes remain in inventory longer. Loan balances will decline in coming quarters as the development loan market becomes more costly and tighter given higher interest rates. This is a reminder that tighter monetary policy affects not only housing demand but housing supply as well. The volume of 1-4 unit residential construction loans made by FDIC-insured institutions increased more than 5% during the third quarter. The volume of loans increased by $5.5 billion on a quarterly basis. This loan volume expansion places the total stock of home building construction loans at $102.6 billion, a post-Great Recession high. On a year-over-year basis, the stock of residential construction loans is up 18%. Since the first quarter of 2013, the stock of outstanding home building construction loans has grown by 151%, an increase of more than $61 billion. It is worth noting the FDIC data represent only the stock of loans, not changes in the underlying flows, so it is an imperfect data source. Lending remains much reduced from years past. The current amount of existing residential AD&C loans now stands 50% lower than the peak level of residential construction lending of $204 billion reached during the first quarter of 2008. Alternative sources of financing, including equity partners, have supplemented this capital market in recent years. The FDIC data reveal that the total decline from peak lending for home building construction loans continues to exceed that of other AD&C loans (nonresidential, land development, and multifamily). Such forms of AD&C lending are off a smaller 21% from peak lending. For the second quarter, these loans posted a 3.7% increase. Related ‹ October Private Residential Spending FallsTags: ADC, economics, home building, housing

AD&C Balances Continue to Rise2022-12-01T14:18:15-06:00

October Private Residential Spending Falls


By Na Zhao on December 1, 2022 • Private residential construction spending declined 0.3% in October, as spending on single-family construction dropped 2.6%. Private residential construction spending fell for the fifth consecutive month, standing at an annual pace of $887.2 billion. This was about 8.6% higher compared to a year ago. The monthly decline is largely attributed to lower spending on single-family construction. Single-family construction spending dropped 2.6% in October, after a decline of 2.7% in September. Compared to a year ago, it is 5.4% lower. High mortgage rates, flagging housing demand, and supply-chain disruptions have put a damper on the housing market. Multifamily construction spending edged up by 0.6% in October, after an increase of 0.64% in September. This was 1.6% over the October 2021 estimates. Private residential improvements rose by 2.1% in October and was a dramatic 32.6% higher over a year ago. Keep in mind that construction spending reports the value of property put-in-place, so it is a measure of property value placed in service at the end of the construction pipeline. The NAHB construction spending index, which is shown in the graph below (the base is January 2000), illustrates how construction spending on single-family has slowed since early 2022 under the pressure of supply-chain issues and elevated interest rates. Multifamily construction held steady in recent months, while improvement spending has increased pace since early 2019. Before the COVID-19 crisis hit the U.S. economy, single-family and multifamily construction spending experienced solid growth from the second half of 2019 to February 2020, followed by a quick post-covid rebound since July 2020. Spending on private nonresidential construction decreased by 0.8% in October to a seasonally adjusted annual rate of $533.2 billion. The monthly private nonresidential spending decrease was mainly due to less spending on the class of manufacturing category (-$3.6 billion), followed by the power category (-$0.7 billion), and the commercial property (-$0.4 billion). Related ‹ Apartment Absorption Rate Reaches 25-year High

October Private Residential Spending Falls2022-12-01T11:15:03-06:00

Construction Job Openings Peaked for Cycle?


The count of open, unfilled jobs for the overall economy declined in October, falling from 10.7 million open positions to 10.3 million. This represents a small decrease from a year ago (11.1 million), a sign the labor market is slowing in response to tighter monetary policy. The degree of this slowing will be critical for a potential downshift in the size of rate hikes from the Fed at future meetings. Ideally, the count of open, unfilled positions slows to the 8 million range in the coming months as the Fed’s actions cool inflationary pressures. While higher interest rates are having an impact on the demand-side of the economy, the ultimate solution for the labor shortage will not be found by slowing demand, but by recruiting, training and retaining skilled workers. The construction labor market saw a decline for job openings in October as the housing market cools. The count of open construction jobs decreased from 423,000 to 371,000 month-over-month. The October reading is only slightly lower than the estimate from a year ago (392,000), a reminder of the persistent challenges of the skilled labor crisis in construction. The construction job openings rate declined, falling to 4.6% from 5.2% in September. The data series high rate of 5.5% was recorded in April. Given the outlook for construction, it is possible that the count of open, unfilled positions for the construction industry has already peaked for this cycle. The housing market remains underbuilt and requires additional labor, lots and lumber and building materials to add inventory. However, the market is slowing due to higher interest rates. Nonetheless, hiring in the construction sector weakened somewhat to a 4.3% rate in October. The post-virus peak rate of hiring occurred in May 2020 (10.4%) as a post-covid rebound took hold in home building and remodeling. Construction sector layoffs fell back to a 1.7% rate in October. In April 2020, the layoff rate was 10.8%. Since that time, the sector layoff rate has been below 3%, with the exception of February 2021 due to weather effects. The number of layoffs in construction fell back to 134,000, compared to 138,000 a year ago. The number of quits in construction in October (189,000) was equal to the measure a year ago (189,000). Looking forward, attracting skilled labor will remain a key objective for construction firms in the coming years. However, while a slowing housing market will take some pressure off tight labor markets, the long-term labor challenge will persist beyond an ongoing macro slowdown. Related ‹ Home Prices Continue to Decline in SeptemberTags: economics, home building, housing, JOLTS, labor market

Construction Job Openings Peaked for Cycle?2022-11-30T12:17:46-06:00

Home Prices Continue to Decline in September


Home prices declined for the third straight month in September as the housing market continues to cool. In September, all 20 metro areas experienced negative home price appreciation. The S&P CoreLogic Case-Shiller U.S. National Home Price Index, reported by S&P Dow Jones Indices, fell at a seasonally adjusted annual growth rate of 8.7% in September, following a 6.4% decline in July and a 10.4% decrease in August. After a decade of growth, home prices started to decline in July, driven by elevated interest rates and high construction costs. The July decline marked the first decline since February 2012, and the September decline marks the third consecutive monthly decline. Nonetheless, national home prices are now 62.4% higher than their last peak during the housing boom in March 2006. On a year-over-year basis, the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index posted a 10.6% annual gain in September, after a 12.9% increase in August. Year-over-year home price appreciation slowed for the sixth consecutive month. Meanwhile, the Home Price Index, released by the Federal Housing Finance Agency (FHFA), increased at a seasonally adjusted annual rate of 0.9% in September, following the previous two months’ decreases. On a year-over-year basis, the FHFA Home Price NSA Index rose by 11.0% in September, following a 12.0% increase in August. The FHFA thus confirmed the slowdown in home price appreciation. In addition to tracking national home price changes, S&P CoreLogic reported home price indexes across 20 metro areas in September. All 20 metro areas reported negative home price appreciation. Their annual growth rates ranged from -23.2% to -3.7% in September. San Francisco, Las Vegas, and Phoenix experienced the most monthly declines in home prices. San Francisco declined 23.2%, while Las Vegas and Phoenix declined 22.7% and 22.3%, respectively. The scatter plot below lists the 20 major U.S. metropolitan areas’ annual growth rates in August and in September 2022. The X-axis presents the annual growth rates in August; the Y-axis presents the annual growth rates in September.  Compared to last month, home prices declined faster in September in the following 12 metro areas: Phoenix, Miami, Tampa, Atlanta, Chicago, Boston, Detroit, Charlotte, Las Vegas, New York, Cleveland, and Dallas. Related ‹ Declining Trend of Two-Story FoyerTags: FHFA Home Price Index, home prices, S&P CoreLogic Case-Shiller Home Price Index

Home Prices Continue to Decline in September2022-11-29T11:16:59-06:00

Declining Trend of Two-Story Foyer


By Fan-Yu Kuo on November 28, 2022 • Information obtained from the US Census Bureau’s Survey of Construction (SOC) and tabulated by NAHB, shows the share of new homes with a two-story foyer decreased in 2021. For 2021, most new single-family homes were built without a two-story foyer nationally and regionally. According to the Census, a two-story foyer is defined as the entranceway inside the front door of a house and has a ceiling that is at the level of the second-floor ceiling. In the United States, the share of new homes with two-story foyers fell from 29% to 25% in 2021, the lowest level in the last 5 years. A two-story foyer has been an unwanted feature from both buyers’ and builders’ perspectives since 2012, as many homebuyers consider two-story foyers energy-inefficient. Regionally, the share declined in seven of the nine divisions. Among these divisions, the West South Central has the highest share of new homes started with two-story foyers (35%). The New England and West North Central are the only two divisions to see an increase in the share of two-story foyers from 2020 to 2021. Related ‹ New Home Sales Increase in OctoberTags: SOC, two-story foyer

Declining Trend of Two-Story Foyer2022-11-28T11:23:16-06:00

New Home Sales Increase in October


By Danushka Nanayakkara-Skillington on November 23, 2022 • New home sales rebounded in October despite higher mortgage rates, likely due to low existing home inventory and builders using incentives to attract buyers to the new home market. The U.S. Department of Housing and Urban Development and the U.S. Census Bureau estimated sales of newly built, single-family homes in October at a 632,000 seasonally adjusted annual pace, which is a 7.5% increase over downwardly revised September rate of 588,000 and is 5.8% below the October 2021 estimate of 671,000. Sales-adjusted inventory levels are at an elevated 8.9 months’ supply in October. However, only 63,000 of the new home inventory is completed and ready to occupy. This count has been increasing in recent months and is up 75.0% compared to a year ago. Homes under construction accounts for 63.8% of the inventory. Moreover, sales are increasingly coming from homes that have not started construction, with that count up 13.7% year-over-year, not seasonally adjusted (NSA). The median sales price increased to $493,000 in October, up 8.2% compared to September and is up 15.4% compared to a year ago. In October there were 23,000 homes that were priced above $500,000 compared to 17,000 a year ago. Nationally, on a year-to-date basis, new home sales are down 14.2% for the first ten months of 2022. Regionally, on a year-to-date basis, new home sales fell in all four regions, down 4.8% in the Northeast, 22.0% in the Midwest, 11.8% in the South, and 17.9% in the West. Related ‹ Small Increase for Missing Middle MultifamilyTags: economics, home building, housing, new home sales, sales, single-family

New Home Sales Increase in October2022-11-23T11:19:34-06:00

Small Increase for Missing Middle Multifamily


By Robert Dietz on November 23, 2022 • The missing middle construction sector includes development of medium-density housing, including townhouses, duplexes and other small multifamily properties. While townhouse construction has trended higher in recent quarters, the multifamily segment of the missing middle (apartments in 2 to 4 unit properties) has disappointed. For 2021, there were only 12,000 starts of such residences. This is flat from from 2020, during a period of time when most construction segments expanded. For the third quarter of 2022, there were just 5,000 2 to 4 unit housing unit construction starts. If accurate after revisions, that would mark the best quarter for this market segment since the middle of 2008. However, the gain is small, so it is not statistically significant. Nonetheless, it does match a pickup in permits for 2 to 4 unit production registered earlier in 2022. As a share of all multifamily production, 2 to 4 unit development is only 3.4% of the total. 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. Related ‹ 97% Built-for-Rent Multifamily Construction ShareTags: missing middle, multifamily

Small Increase for Missing Middle Multifamily2022-11-23T08:22:21-06:00

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