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Market Share of 5,000+ Square Foot Homes Declines in 2023

Ashok Chaluvadi2024-07-26T10:19:36-05:00

The number of homes started in 2023 exceeding 5,000 square feet, dropped to 26,000, a decrease from 29,000 in 2022, according to the annual data from the Census Bureau’s Survey of Construction (SOC). In 2006, the number of new 5,000+ square foot homes reached a peak of 45,000. This number proceeded to drop during the Great Recession and hit a low of 11,000 in 2009. Since 2013, this number has remained consistently above 20,000, and reached a small peak of 33,000 in 2021. Of the total number of new homes started in 2023, the share of new homes with 5,000+ square feet was down slightly as well, from 2.90% in 2021 to 2.76% in 2023. In 2015, the 5,000+ square foot home share reached a peak of 3.92%. Since then, the share has fluctuated in a band between 2.50% and 3.08%. The 2023 decline in the share of 5,000+ square foot homes is consistent with the recent, quarterly downward trend in median and average size of new single-family homes. Tabulating the major characteristics of 5,000+ square foot homes started in 2023, the data shows 84% have a porch, 79% have a finished basement, 67% have 4 bathrooms or more, 61% have a patio, 60% have a 3-or-more car garage, 50% belong to a community association and 58% have 5 bedrooms or more. Discover more from Eye On Housing Subscribe to get the latest posts sent to your email.

Market Share of 5,000+ Square Foot Homes Declines in 2023Ashok Chaluvadi2024-07-26T10:19:36-05:00

Lot Values Trend Higher

Natalia Siniavskaia2024-07-10T07:57:49-05:00

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 HigherNatalia Siniavskaia2024-07-10T07:57:49-05:00

Share of Smaller Lots Is at New High

Natalia Siniavskaia2024-07-09T08:25:49-05:00

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 HighNatalia Siniavskaia2024-07-09T08:25:49-05:00

Home Building Employment across States and Congressional Districts in 2022

Natalia Siniavskaia2024-05-30T07:33:15-05:00

According to the latest 2022 ACS, 11.2 million people, including self-employed workers, worked in construction in 2022. NAHB estimates that out of this total, 4.7 million people worked in residential construction, accounting for 2.9% of the US employed civilian labor force. Home building in the Mountain Division, as well as in Florida, stand out as generating a significantly higher share of local jobs, with residential construction generating close to 6% of all jobs in Idaho. NAHB’s analysis also identifies congressional districts where home building accounts for particularly high employment levels and share of local jobs. Not surprisingly, the most populous state—California—also has the most residential construction workers. Over 650,000 California residents worked in home building in 2022, accounting for 3.4% of the state employed labor force. Fast-growing Florida comes in second with 466,000 residential construction workers. The state stands out for registering one of the fastest growing populations since the start of the pandemic, which undoubtedly boosted housing and construction workforce demand. Florida’s large stock of vacation and seasonal housing further boosts demand for residential construction workers. As a result, in Florida, residential construction workers account for a relatively high 4.4% of the employed labor. Even though this share is well above the national average (2.9%), it is significantly lower than in 2006, when Florida registered the highest share among all 50 states and the District of Columbia, at 6.5%. Similar to Florida, fast-growing states with a high prevalence of seasonal, vacation homes top the list of states with the highest share of residential construction workers in 2022. Three states in the Mountain Division – Idaho, Utah, and Montana – take the top spots on the list with 5.9%, 5.4% and 4.8% of the employed labor force working in home building. Florida is next on the list with a share of 4.4%. In addition, ten other states register shares of residential construction workers that approach 4%: Maine (3.9%), Wyoming (3.8%), Vermont (3.8%), Washington, Colorado, New Hampshire, Nevada with 3.7%, and Arizona, North Carolina, and Oregon with 3.5%. As of 2022, the average congressional district has about 10,800 residents working in residential construction, but that number is often significantly higher. In Idaho’s 1st Congressional District, over 29,000 residents are in home building and Idaho’s 2nd Congressional District has close to 25,000 residents working in home building. Eight other congressional districts have over 20,000 residents working in residential construction – Florida’s 26th (24,700), Utah’s 4th (24,500), Utah’s 2nd (24,300), Florida’s 17th (21,400), Utah’s 1st (20,600), Florida’s 7th (20,500), California’s 29th (20,400), and Colorado 8th (20,100). By design, Congressional districts are drawn to represent roughly the same number of people. So generally, large numbers of residential construction (RC) workers translate into high shares of RC workers in their district employed labor forces. Idaho’s 1st registers the highest share of residential construction workers in the employed labor force, 6.4%. Two districts in Florida (Florida’s 17th and 26th) are next on the list with shares of 6.2%. Utah’s 2nd (5.7%) and California’s 29th (5.5%) also register shares far exceeding the national average of 2.9%. At the other end of the spectrum there are several districts that contain parts of large urban areas: the District of Columbia, the 12th of New York, located in New York City, Pennsylvania’s 3rd that includes areas of the city of Philadelphia, Illinois’s 7th and 5th, Georgia’s 5th that includes most of Atlanta, and among others, Louisiana’s 2nd that contains New Orleans. Most residents in these urban districts tend to work in professional, scientific, and technical services. The District of Columbia stands out for having the lowest number of RC workers, with less than 1,000 residing in the district. At the same time, it has a disproportionally large share of public administration workers. The 12th District of New York and the 7th District of Illinois are home to a very large group of finance and insurance workers. Meanwhile, in Pennsylvania’s 2nd, more than a third of residents work in health care and educational services. The NAHB residential construction employment estimates include self-employed workers. Counting self-employed is particularly important in the home building industry since they traditionally make up a larger share of the labor force than in the US total workforce. The new NAHB home building employment estimates only include workers directly employed by the industry and do not count jobs created in related industries– such as design and architecture, furniture making, building materials, landscaping, etc. As a result, the estimates underestimate the overall impact of home building on local employment. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Home Building Employment across States and Congressional Districts in 2022Natalia Siniavskaia2024-05-30T07:33:15-05:00

At 2022 Rates, 10 Million More Households Could Afford a New Home

Paul Emrath2024-05-08T10:18:23-05:00

According to the latest press release from Freddie Mac, the average rate on a 30-year fixed-rate mortgage has now risen to approximately 7.25%. As the data posted on NAHB’s priced-out web page shows, at this rate only about 27.5 million (out of a total of 134.7 million) U.S. households could afford to buy a median-priced new home, based on their incomes and standard underwriting criteria. For context, consider that the last time the average mortgage rate was under 6.25% was in mid-February of 2023. If that interest rate prevailed now, 4.5 million more households (for a total of 32.0 million) could afford the median new home. A year further back, prior to mid-February of 2022, the average mortgage rate was consistently under 5.00%. At a rate of 5.00%, 37.7 million households could afford the median new home. In short,10.2 million U.S. households are currently being priced out of the market by the average mortgage rate sitting 225 basis points higher than it was in February 2022. A recent post, How Rising Costs Affect Home Affordability, showed how many households are priced out of the market by a $1,000 increase in the price of the median new home. The analysis is based on the standard underwriting criterion that the sum of mortgage payments (principal and interest), property taxes, homeowners and private mortgage insurance premiums (PITI) during the first year should be no more than 28 percent of the home buyer’s income. The advantage of this methodology is that it requires only a starting house price, household income distribution, and characteristics of the typical mortgage. A household income distribution is available for virtually any part of the country from the Census Bureau’s American Community Survey. Typical mortgage characteristics and other details are discussed both in NAHB’s April 1 Special Study and on the priced-out web page. This same methodology can be used to determine the number of U.S. household priced out of the market by a change in interest rates, rather than house prices. Results of these calculations are reproduced from the special study and web page in the table below: Finding the impact of a change in the mortgage rate (in either direction) from this table is relatively straightforward. For example, the 7.25%-mortgage-rate row shows approximately 27.5 million households able to afford the median-priced new home. If the rate fell back to 6.25%, the table shows an additional 4.5 million (for a total of approximately 32.0 million) households would be priced into the market. This change is particularly relevant, as NAHB is currently projecting that the average mortgage rate will be near 6.25% by the end of 2024—although there is considerable uncertainty around this number, due largely to uncertainty about what monetary policy the Federal Reserve will find necessary to contain inflation. Readers can refer back to the above table to track the impact actual changes in mortgage rates are having on affordability of new homes over the rest of the year. As many analysts have noted, interest rates and house prices interact with each other to determine new home affordability. For example, if the costs of producing homes and the resulting prices to buyers were reduced (for instance, by adopting some of the measures in NAHB’s 10-point plan to lower shelter inflation), more than 4.5 million households would be priced into the market by reducing interest rates from 7.25% to 6.25%. Similarly, if interest rates were lower, a larger number of households would be priced into the market by a given reduction in house prices. This occurs because at lower prices or interest rates, the starting point is in a denser part of the U.S. income distribution, where there are more households to be priced into (or out of) the market. This point will be illustrated graphically in a forthcoming post on NAHB’s 2024 housing affordability pyramid. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

At 2022 Rates, 10 Million More Households Could Afford a New HomePaul Emrath2024-05-08T10:18:23-05:00

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