Number of 5,000+ Square Foot Homes Down in 2022


According to the annual data from the Census Bureau’s Survey of Construction (SOC), a total of 29,000 5,000+ square-foot homes were started in 2022, down from 33,000 in 2021.  In the boom year of 2006, the number of new 5,000+ square foot homes reached a peak of 45,000.   In 2007, the number fell to 37,000.  In 2008, only 20,000 such homes were started, and from 2009 to 2012, the number remained well under 20,000 a year, but has been consistently above 20,000 since then. On a percentage basis, the share of new homes started with 5,000 square feet or more of living space was also down slightly, from 2.90% in 2021 to 2.85% in 2022.  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 3.10%.  The 2022 decline in the share of 5,000+ square foot homes is consistent with the recent downward trend in median and average size of new single-family homes reported elsewhere. Tabulating the major characteristics of 5,000+ square foot homes started in 2022 shows that 80% have a porch, 70% have a finished basement, 68% have 4 bathrooms or more, 66% have a patio, 67% have a 3-or-more car garage, 56% belong to a community association and 54% have 5 bedrooms or more. Related ‹ Lot Values Trail Behind InflationTags: economics, eye on the economy, home building, housing economics, single-family, starts, survey of construction

Number of 5,000+ Square Foot Homes Down in 20222023-09-28T10:23:23-05:00

New Homes Same Size but Higher Priced if Age-Restricted


Of the roughly 1,005,000 single-family and 547,000 multifamily homes started in 2022, 59,000 (28,000 single-family and 31,000 multifamily) were built in age-restricted communities, according to NAHB tabulation of data from the Survey of Construction (SOC, conducted by the U.S. Census Bureau and partially funded by HUD).  A residential community can be legally age-restricted, provided it conforms the one of the set of rules specified in the Housing for Older Persons Act  of 1995. NAHB was first successful in persuading HUD and the Census Bureau to collect and publish data on the age-restricted status of new homes in 2009, during the depths of the housing downturn.  In 2009, builders started only 17,000 homes in age-restricted communities  (9,000 single-family and 8,000 multifamily).  The numbers then increased steadily until reaching 60,000 age-restricted starts, roughly evenly split between single-family and multifamily) in 2018.  In 2022, the 28,000 age-restricted single-family starts were slightly off the peak of 33,000 reached a year earlier, and the 31,000 age-restricted multifamily starts tied the all-time high set in 2018.  Although we don’t yet have data on age-restricted starts for 2023, a recent post shows that starts in general have been running lower than they were a year earlier, due largely to the Federal Reserve’s policy of interest rate hikes to tame inflation. The SOC provides enough data to look at the characteristics of new age-restricted single-family homes to see if they differ from other single-family homes started in 2022.  This exercise shows that the age-restricted homes tend to be about the same size as others, but on somewhat smaller lots and higher-priced.  The median size of an age-restricted home was exactly the same as the median for other single-family homes in 2022: 2,300 square feet.  As usual, however, the median lot size for age-restricted homes, was somewhat smaller—just under one-sixth of an acre vs. one-fifth for homes started outside of age-restricted communities.  There has been a general trend toward smaller lot sizes, as described in a September 8 post.  Another trend that has continued is the one toward higher house prices.  The median price of a new, age-restricted single family home started in 2022 and built for sale was $472,000—$75,000 higher than it was a year earlier and considerably above the $461,000 median price of non-age-restricted homes started in 2022. Other questions in the SOC show that new single-family homes are more likely to be attached (i.e., townhomes), and single story with no basement if the homes are age-restricted.  The age-restricted homes are also more likely to come with patios, but less likely to have decks.  Finally, age-restricted homes are less likely to require a loan and more likely to be purchased for cash, as home buyers who are older have had more of a chance to accumulate the savings and assets (often equity in a previous home) that can be converted to cash. Related ‹ Employment Situation in August: State-Level AnalysisTags: 55+ housing, age restricted, economics, home building, housing, SOC, survey of construction

New Homes Same Size but Higher Priced if Age-Restricted2023-09-25T08:17:51-05:00

Market Share for Modular and Other Non-Site Built Housing in 2022


The total market share of non-site built single-family homes (modular and panelized) was just 2% of single-family homes in 2022, according to completion data from the Census Bureau Survey of Construction data and NAHB analysis. This share has been steadily declining since the early-2000s despite the high-level of interest for non-site built construction. This low market share in fact runs counter to some media commentary on off-site construction, which nonetheless holds potential for market share gains in the years ahead. In 2022, there were 26,000 total single-family units built using modular (12,000) and panelized/pre-cut (14,000) construction methods, out of a total of 1.02 million single-family homes completed. While the market share is small, there exists potential for expansion. This 2% market share for 2022 represents a decline from years prior to the Great Recession. In 1998, 7% of single-family completions were modular (4%) or panelized (3%). This marked the largest share for the 1992-2022 period. One notable regional concentration is found in the Northeast and Midwest. In the Northeast, 7% (3,000 homes) of the region’s 60,000 housing units were completed using non-site build construction methods, the highest share in the country. In the Midwest, 6% (7,000 homes) of the region’s 137,000 housing units were completed using non-site build construction methods. With respect to multifamily construction, approximately 2% of multifamily buildings (properties, not units) were built using panelized methods. Similar to single-family construction, this market share was expected to grow, but the expected gains did not materialize due to various constraints in the industry. In the year 2000 and 2011, 5% of multifamily buildings were constructed with modular (1%) or panelized construction methods (4%). Related ‹ Existing Home Sales Hit 7-Month Low as Prices Keep RisingTags: economics, home building, housing, modular, multifamily, panelized, single-family, SOC, systems built

Market Share for Modular and Other Non-Site Built Housing in 20222023-09-22T08:38:28-05:00

One More Fed Rate Hike in 2023?


By Robert Dietz on September 20, 2023 • The Federal Reserve’s monetary policy committee held the federal funds rate at a top target rate of 5.5% at the conclusion of its September meeting. The Fed will also continue to reduce its balance sheet holdings of Treasuries and mortgage-backed securities as part of quantitative tightening. These actions are intended to slow the economy and bring inflation back to 2%. After an increase in rates in July, the pause for September will likely be temporary. Indeed, the Fed maintained a hawkish bias by noting: “additional policy firming may be appropriate to return inflation to 2 percent over time.” The Fed’s dot-plot projections imply one more 25 basis point increase in 2023 (presumably in November), which would be the last increase for this cycle. Then the Fed will hold this higher rate for longer – with the Fed’s projections suggesting no rate cuts until the second half of 2024. And as a revision, the Fed’s projections suggest only two rate cuts for 2024. And during that time, quantitative tightening will continue, keeping the spread between the 10-year Treasury and the 30-year fixed rate mortgage elevated. It is currently near 300 basis points. The Fed faces competing risks: elevated but trending lower inflation combined with ongoing risks to the banking system and macroeconomic slowing. Chair Powell has previously noted that near-term uncertainty is high due to these risks. Nonetheless, economic data remains better than expected. The Fed stated today: “economic activity has been expanding at a solid pace,” and that “job gains have slowed but remain strong, the unemployment rate has remained low.” Despite this positive assessment from the Fed, there are ongoing challenges for regional banks, as well weakness for commercial real estate. Going from near zero to 5.5% on the federal funds rate is a dramatic policy move with possible unintended consequences. More caution seems prudent. In fact, prior risks for smaller banks will result in tighter credit conditions, which will slow the economy and reduce inflation. Thus, these financial challenges act as additional surrogate rate hikes in terms of tightening credit availability, doing some of the work for the Fed. The 10-year Treasury rate, which determines in part mortgage rates, increased to near 4.4% upon the Fed announcement. Mortgage rates will remain above 7% range, which is currently home builder sentiment. Related ‹ Housing Starts Lower on Rising Mortgage RatesTags: FOMC, home building, housing, interest rates, multifamily, single-family

One More Fed Rate Hike in 2023?2023-09-20T18:21:07-05:00

Single-Family Permits Decline in July 2023


Over the first seven months of 2023, the total number of single-family permits issued year-to-date (YTD) nationwide reached 527,158. On a year-over-year (YoY) basis, this is 18.4% below the July 2022 level of 645,877. Year-to-date ending in July, single-family permits declined in all four regions. The Northeast posted the lowest decline of 12.1%, while the West region reported the steepest decline of 25.1%. The South declined by 16.5% and the Midwest declined by 18.0% in single-family permits during this time. For multifamily permits, the South region posted a modest decline of 7.5% while the West declined by 14.1%, the Midwest declined by 20.8%, and the Northeast declined by 31.2%. Between July 2022 YTD and July 2023 YTD, except for Hawaii (+16.1%), all the other states and the District of Columbia reported declines in single-family permits. The range of declines spanned 1.5% in Maryland to 49.3% in Alaska. The ten states issuing the highest number of single-family permits combined accounted for 63.9% of the total single-family permits issued. Texas, the state with the highest number of single-family permits issued, declined 20.3% in the past 12 months while the next two highest states, Florida and North Carolina declined by 18.8% and 10.3% respectively. Year-to-date, ending in July, the total number of multifamily permits issued nationwide reached 337,730. This is 14.3% below the July 2022 level of 394,215. Between July 2022 YTD and July 2023 YTD, 16 states recorded growth, while 34 states and the District of Columbia recorded a decline in multifamily permits. Rhode Island (+150.0%) led the way with a sharp rise in multifamily permits from 126 to 315 while Wyoming had the largest decline of 63.6% from 302 to 110. The ten states issuing the highest number of multifamily permits combined accounted for 64.8% of the multifamily permits issued. Texas, the state with the highest number of multifamily permits issued, declined 19.3% in the past 12 months while the next two highest states, Florida declined by 2.9% and California increased by 4.5%. At the local level, below are the top ten metro areas that issued the highest number of single-family permits. Top 10 Largest SF Markets July-23 (# of units YTD, NSA) YTD % Change(compared to July-22) Houston-The Woodlands-Sugar Land, TX                                         29,687 -8% Dallas-Fort Worth-Arlington, TX                                         24,088 -19% Atlanta-Sandy Springs-Roswell, GA                                         14,417 -14% Phoenix-Mesa-Scottsdale, AZ                                         13,302 -33% Charlotte-Concord-Gastonia, NC-SC                                         11,174 -13% Orlando-Kissimmee-Sanford, FL                                         10,020 -9% Austin-Round Rock, TX                                           9,202 -39% Nashville-Davidson–Murfreesboro–Franklin, TN                                           8,669 -17% Tampa-St. Petersburg-Clearwater, FL                                           8,050 -22% Raleigh, NC                                           7,639 -10% For multifamily permits, below are the top ten local areas that issued the highest number of permits.  Top 10 Largest MF Markets July-23 (# of units YTD, NSA) YTD % Change(compared to July-22) New York-Newark-Jersey City, NY-NJ-PA                                         17,802 -43% Dallas-Fort Worth-Arlington, TX                                         15,567 -23% Houston-The Woodlands-Sugar Land, TX                                         11,897 -22% Phoenix-Mesa-Scottsdale, AZ                                         11,608 7% Los Angeles-Long Beach-Anaheim, CA                                         10,925 -5% Austin-Round Rock, TX                                         10,895 -32% Miami-Fort Lauderdale-West Palm Beach, FL                                         10,266 25% Atlanta-Sandy Springs-Roswell, GA                                         10,000 0% Washington-Arlington-Alexandria, DC-VA-MD-WV                                           7,347 -27% Denver-Aurora-Lakewood, CO                                           7,148 -16% Related ‹ Building Materials Prices Remain Stable but Diesel Skyrockets 40% in AugustTags: home building, multifamily, single-family, state and local markets, state permits

Single-Family Permits Decline in July 20232023-09-15T09:16:54-05:00

Decline for AD&C Loan Volume in the Second Quarter


By Robert Dietz on September 8, 2023 • The volume of total outstanding acquisition, development and construction (AD&C) loans posted a decline during the second quarter of 2023 as interest rates continue to rise and financial conditions tighten. The volume of 1-4 unit residential construction loans made by FDIC-insured institutions declined by 2.8% during the second quarter. The volume of loans declined by $2.9 billion for the quarter. This loan volume retreat places the total stock of home building construction loans at $101.4 billion, off a post-Great Recession high set during the first quarter. On a year-over-year basis, the stock of residential construction loans is up 5.5%. 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 11% from peak lending. For the second quarter, these loans posted a 3.2% increase. Related ‹ Share of Smaller Lots Hits New Record HighTags: ADC, economics, home building, housing

Decline for AD&C Loan Volume in the Second Quarter2023-09-08T12:17:25-05:00

Share of Smaller Lots Hits New Record High


According to the latest Survey of Construction (SOC), 42 percent of new single-family detached homes sold in 2022 were built on lots under 7,000 square feet, that is smaller than 1/16 of an acre. This is the highest share on record and reflects stark changes in the lot size distribution since the Census Bureau started tracking these series over 20 years ago when just 28 percent of new for-sale single-family detached homes were occupying lots of that size. The fact that 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 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. Aggregating up and including all lots smaller than one-fifth of an acre brings the share close to 68%. In sharp contrast, less than half (46%) 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 additional 6 percentage points during the last three years. A closer look at the lot size distribution since 2011 shows that most dramatic shifts took place at the lowest end, with lots under 0.16 acres increasing their share by 14 percentage points. In 2011, 28% of all sold single family detached homes were sitting on lots under 0.16 acres and additional 22% were occupying lots between 0.16 and 0.25 acres. Fast forward to 2022, these shares increased to 42% 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 12% in 2011 to 8% in 2022. The share of lots measuring between a quarter and half an acre declined from 24% to 17% over that time span. The median lot size of a new single-family detached home sold in 2022 now stands at 8,524 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 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 2022, the median lot size in New England is 2.5 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 one-half of an acre. The neighboring Mid Atlantic and more distant East South Central divisions are next 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 0.16 acres. This is significantly lower than typical lots in the neighboring East South Central division where half of the lots exceed 0.29 acres. 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 a national median. The analysis above is limited to single-family detached speculatively built homes. Custom homes built on 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 case of custom homes, lots refer to owner’s land area rather than lots in 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 2022 exceeds 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. Related ‹ Stucco and Vinyl were the Most Common Siding Materials on New Homes in 2022Tags: custom home lots, home building, housing, lot size, new home, regional differences, single family detached homes, single-family, spec home lots, spec homes

Share of Smaller Lots Hits New Record High2023-09-08T08:15:03-05:00

Large Metro Markets Show Biggest Slowdown in Single-Family Construction


By Jesse Wade on September 5, 2023 • Rising mortgage rates and elevated construction costs have taken a toll on the pace of single-family construction in markets across the nation, with the slowdown most pronounced in large metro areas. Multifamily market growth also fell in most areas of the country, according to the latest findings from the National Association of Home Builders (NAHB) Home Building Geography Index (HBGI) for the second quarter of 2023. Across the single-family market, the 4-quarter moving average of the year-over-year growth rates remained negative for all markets in the second quarter of 2023. Between the second quarter of 2022 and the second quarter of 2023, the growth rates across all markets fell double digits, with the largest change in growth rate occurring in Large Metro – Outlying Areas. With all single-family growth rates continuing to be negative for the second consecutive quarter, the largest percentage decrease in building was in Large Metro – Core Counties at negative 24.8%. Micro Counties was the only market to post a single digit percentage decline at negative 8.7%. Over the past four years rural markets have exhibited strength. The rural (Micro Counties and Non Metro/Micro Counties) single-family home building market share has increased from 9.4% at the end of 2019 to 11.7% by the second quarter of 2023. The combined market share for Large Metros (Core, Suburban, Outlying) remained below 50% for the second consecutive quarter as it was unchanged at 49.8%. The multifamily market started to show signs of cooling down in the latest release of the HBGI. The year-over-year moving average growth rate for four of the seven markets fell into negative territory. Large Metro – Outlying Counties, Micro counties and Non Metro/Micro counties all remained positive. Non Metro/Micro counties had the highest growth at 26.6% while Large Metro – Core Counties was the lowest at negative 10.6%. The multifamily market share for Large Metro – Core Counites dropped 1.2 percentage points between the first and second quarter of 2023, falling from 38.6% to 37.4%. The largest increase in market share between the quarters was in Large Metro – Outlying Counties which increased 0.6 percentage points from 26.4% to 27.0%. The second quarter of 2023 HBGI data can be found at Related ‹ July Gains in Private Residential Construction SpendingTags: HBGI, home building, home building geography index, multifamily, single-family

Large Metro Markets Show Biggest Slowdown in Single-Family Construction2023-09-05T08:33:15-05:00

Job Openings Data Reveal Labor Market Cooling


The count of open, unfilled jobs for the overall economy continued to moved lower in July, falling to 8.8 million. While certain inflation readings have raised the likelihood of a September Federal Reserve interest rate increase, the JOLTS survey is another data point indicating an ongoing but gradual cooling of macro conditions due to elevated interest rates. The count of open jobs was 11 million a year ago in July 2022. The count of total job openings will continue to fall in 2023 as the labor market softens and the unemployment rises. From a monetary policy perspective, ideally the count of open, unfilled positions slows to the 8 million range in the coming months as the Fed’s actions cool inflation. The economy is approaching that level according to this new data release. 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 worker demand, but by recruiting, training and retaining skilled workers. This is where the risk of a monetary policy mistake can be found.  Good news for the labor market does not automatically imply bad news for inflation. The construction labor market continued to cool in July. The count of open construction jobs decreased to 363,000. This estimate comes after a data series high of 488,000 in December 2022. The overall trend is one of cooling for open construction sector jobs as the housing market slows and backlog is reduced, with a notable uptick in month-to-month volatility since late last year. The construction job openings rate ticked down to 4.4% in July. The recent trend of these estimates points to the construction labor market having peaked in 2022 and is now entering a stop-start cooling stage as the housing market adjusts to higher interest rates. Despite additional weakening that will occur in the second half of 2023, the housing market remains underbuilt and requires additional labor, lots and lumber and building materials to add inventory. Hiring in the construction sector ticked up to 4.8% in July after a 4.7% reading in June. 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 increased to 1.8% in July. 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 and March 2023 due to some market churn. Looking forward, attracting skilled labor will remain a key objective for construction firms in the coming years. While a slowing housing market will take some pressure off tight labor markets, the long-term labor challenge will persist beyond the ongoing macro slowdown. Related ‹ Wood-Framed Home Share Increased for Three Straight YearsTags: employment, home building, JOLTS

Job Openings Data Reveal Labor Market Cooling2023-08-29T10:17:03-05:00

AD&C Loans: Rising Rate & Tightening Trends Continue


Interest rates on loans for Acquisition, Development & Construction (AD&C) continued to climb in the second quarter of 2023, according to NAHB’s quarterly Survey on AD&C Financing.  Quarter-over-quarter, the contract interest rate increased on all four categories of loans tracked in the AD&C Survey: from 8.50% to 8.62% on loans for land acquisition, from 8.19% to 8.70% on loans for land development, from 8.10% to 8.37% on loans for speculative single-family construction, and from 7.61% to 8.18% on loans for pre-sold single-family construction.  In all four cases, the contract interest rate was higher in 2023 Q2 than it had been at any time since NAHB began collecting the data in 2018.  The rates have been climbing steadily every quarter since the start of 2022 with one minor exception (for land acquisition loans in the third quarter of 2022). Meanwhile, the average initial points charged on the loans actually declined in the second quarter: from 0.81% to 0.52% on land development loans, from 0.85% to 0.81% on land acquisition loans, from 0.79% to 0.71% for speculative single-family construction, and from 0.53% to 0.44% on loans for pre-sold single-family construction. Only in the case of land acquisition, however, was the decline in initial points large enough to offset the contract interest rate and reduce the average effective rate (the rate of return to the lender over the assumed life of the loan, taking both the contract interest rate and initial points into account) paid by developers: from 11.09% in the first quarter to 10.87%.  On the other three categories of AD&C loans, the average effective rate continued to climb, much as it had over the previous year: from 11.88% to 12.67% on loans for land development, from 12.59% to 12.85% on loans for speculative single-family construction, and from 12.01% to 12.67% on loans for pre-sold single-family construction. The NAHB AD&C financing survey also collects data on credit availability.  To help interpret these data, NAHB generates a net easing index, similar to the net easing index based on the Federal Reserve’s survey of senior loan officers.  Plotting the two indices on a single graph lets viewers compare what both the borrowers and lenders are saying about current credit conditions. In the second quarter of 2023, both the NAHB and Fed indices were slightly less negative than they had been in the first quarter, but still solidly in negative territory, indicating net tightening of credit. The NAHB net easing index posted a reading of -35.3, compared to -36.0 in the first quarter.  And the Fed net easing index posted a reading of -71.7, compared to -73.3 in the first quarter.  This marks the sixth consecutive quarter during which both borrowers and lenders have been reporting tightening credit conditions. More detail on current credit conditions for builders and developers is available on NAHB’s AD&C Financing web page. Related ‹ Home Improvement Loan Applications in 2021: A State- and County-Level AnalysisTags: ad&c lending, ad&c loans, ADC, construciton loans, construction lending, credit conditions, economics, home building, housing, interest rates, lending

AD&C Loans: Rising Rate & Tightening Trends Continue2023-08-25T07:37:24-05:00

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