Credit for Builders Less Available, Costs More

2022-08-11T12:16:12-05:00

During the second quarter of 2022, credit became both tighter and more costly on loans for Acquisition, Development & Construction (AD&C) according to NAHB’s Survey on AD&C Financing. 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 substantially from the prior quarter on all four categories of loans tracked in the AD&C Survey: from 6.32 percent to 8.19 percent on loans for land acquisition, from 7.85 to 9.55 percent on loans for land development, from 7.38 to 8.48 percent on loans for speculative single-family construction, and from 7.90 to 8.63 percent on loans for pre-sold 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 loans.  In the second quarter, average points were unchanged from the previous quarter at 0.63 percent on loans for speculative single-family construction, and actually down slightly on the other three categories of AD&C loans: from 0.90 to 0.86 percent on loans for land acquisition, from 0.95 to 0.90 percent on loans for land development, and from 0.63 to 0.51 percent on loans for pre-sold single-family construction.  However, these relatively small changes were overshadowed by strong surges in the average contract interest rate changed on the loans:  from 4.36 to 6.19 percent on  loans for land acquisition, from 4.60 to 6.27 percent on loans for land development, from 4.63 to 5.39 percent on loans for speculative single-family construction, and from 4.61 to 5.24 percent on loans for pre-sold single-family construction. The NAHB survey also produces a net easing index  that summarizes the change in credit conditions, similar to the net easing index constructed from the Federal Reserve’s survey of senior loan officers (SLOOS).  The second quarter of 2022 was the second consecutive quarter during which both the NAHB and Fed indices were negative, indicating tightening credit conditions.  Moreover, both indices were substantially more negative in the second quarter than they had been  in the first.  In the second quarter, the NAHB net easing index stood at -21.0 while the Fed index was -48.4—compared to -2.30 and -4.7, respectively, in the first quarter of 2022. The most common ways in which the lenders tightened in the second quarter were by increasing the interest rate on the loans (cited by 68 percent of the builders and developers who reported tighter credit conditions), lowering the allowable Loan-to-Value or Loan-to-Cost ratio (65 percent) and reducing amount they are willing to lend (61 percent). The results of the second quarter AD&C survey are consistent with the general tightening of financial conditions and rising interest rates reported in a previous post.   More detail, including a complete history for every question in the survey, is available on NAHB’s AD&C Financing Survey web page. Related ‹ Housing Affordability Falls to Lowest Level Since Great RecessionTags: ad&c lending, ad&c loans, ADC, construciton loans, construction lending, credit conditions, economics, home building, housing, interest rates, lending

Credit for Builders Less Available, Costs More2022-08-11T12:16:12-05:00

Single-Family Homes Started in 2021

2022-08-09T09:21:22-05:00

According to NAHB analysis of the Survey of Construction (SOC), new single-family starts expanded at a fast pace in 2021. Nationally, 1,133,145 new single-family units were started in 2021, 14% higher than the units started in 2020. It marked the fastest growth rate since 2013 and the highest count of starts since the Great Recession. Among all the nine Census divisions, the South Atlantic, West South Central and Mountain Divisions led the way with the most new single-family units started in 2021. These three divisions represent 20 states and Washington, D.C., approximately 41% of United States, while the number of new single-family housing starts in these three divisions accounted for more than two thirds of the total new single-family housing starts in 2021. In addition, single-family units started in the Pacific Division increased to 106,240 in 2021, exceeding 100,000 for the second straight year since the 2008 recession. There were 93,693 new single-family units started in the East North Central Division in 2021. While the Pacific Division accounted for 9% of the total new single-family housing starts, the East North Central Division accounted for 8%. The other four divisions, including East South Central, West North Central, Middle Atlantic and New England, accounted for the remaining 16% of the total new single-family housing starts. In 2021, four out of the nine divisions grew faster than the national level of 14%. The Middle Atlantic Division led the way with a 26% increase, followed by the East South Central Division with a 23% increase and the West South Central Division with a 19% increase. The growth rates of the other five divisions were close to or below the national level. Compared to last year, five out of the nine divisions, including Middle Atlantic, East South Central, West South Central, South Atlantic, and West North Central, had an acceleration in 2021. Meanwhile, the Mountain, East North Central, Pacific, and New England Divisions experienced a deceleration in growth in 2021.  Noticeably, the Middle Atlantic Division grew by 26% in 2021, following a decrease of 9% in 2020. Related ‹ June Job Openings and Monetary Policy ConsiderationsTags: annual growth rate, housing starts, nine divisions, single-family

Single-Family Homes Started in 20212022-08-09T09:21:22-05:00

Job Gains Soar in July Amid Recession Fears

2022-08-05T11:15:15-05:00

Job growth accelerated in July amid higher inflation and growing economic pressures. Total nonfarm payroll employment increased by 528,000, and the unemployment rate edged down to 3.5% in July. Construction industry employment (both residential and non-residential) totaled 7.7 million and has exceeded its February 2020 level. In July, residential construction gained 14,100 jobs, and non-residential construction added 18,300 jobs. Residential construction employment currently exceeds its level in February 2020, while 83% of non-residential construction jobs lost in March and April have now been recovered. Total nonfarm payroll employment increased by 528,000 in July, following a gain of 398,000 in June, as reported in the Employment Situation Summary.  It marks the largest gain since February 2022. The estimates for the previous two months were revised up. The May estimate was revised up by 2,000 from +384,000 to +386,000, while the June increase was revised up by 26,000. With these revisions, employment in May and June together was revised up by 28,000 from the previously reported ones. In the first seven months of 2022, more than 3.3 million jobs were created, and monthly employment growth averaged 471,000 per month. As of July 2022, total nonfarm employment is back to pre-pandemic level in February 2020, meaning U.S. labor market is fully recovered from the COVID-19 pandemic. Meanwhile, the unemployment rate edged down to 3.5% in July from 3.6% in June, returning to the level in February 2020. The labor force participation rate, the proportion of the population either looking for a job or already with a job, ticked down 0.1 percentage point to 62.1% in July. Additionally, according to the Household Survey supplemental data, which come from questions added to the Current Population Survey (CPS) since May 2020, 7.1% of employed persons teleworked or worked at home in the last 4 weeks specifically because of the coronavirus pandemic in July, unchanged from the previous month. In May 2020, 35.4% of employed persons teleworked because of the coronavirus pandemic. Job growth in July was broad-based across sectors, led by gains in leisure and hospitality (+96,000), professional and business services (+89,000), and health care (+70,000). Employment in the overall construction sector increased by 32,000 in July, following a 16,000 gain in June. Residential construction gained 14,100 jobs, while non-residential construction employment gained 18,300 jobs in July. Residential construction employment now stands at 3.2 million in July, broken down as 902,000 builders and 2.3 million residential specialty trade contractors. The 6-month moving average of job gains for residential construction was 11,900 a month. Over the last 12 months, home builders and remodelers added 120,800 jobs on a net basis. Since the low point following the Great Recession, residential construction has gained 1,186,500 positions. In July, the unemployment rate for construction workers rose by 0.4 percentage points to 3.9% 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 ‹ Headship Stabilizes During the Pandemic Housing BoomTags: employment, labor force, labor force participation rate, residential construction employment

Job Gains Soar in July Amid Recession Fears2022-08-05T11:15:15-05:00

Headship Stabilizes During the Pandemic Housing Boom

2022-08-05T08:15:34-05:00

Headship rates for all age groups have been trending lower over the last two decades, with important implications for the demand for home building. The latest Current Population Survey (CPS) Annual Social and Economic Supplement (ASEC) data show that the pandemic housing boom brought this trend to a halt, with adults ages 35-64 now registering higher headship rates than they were pre-covid. For the younger group ages 25-34, headship rates bounced back to pre-pandemic levels. The only two age groups that saw a decline in their headship rates over the pandemic-fueled housing boom are college-age (18-24) adults and the 65+ cohort. Headship rates – share of people who are household heads – tell us how many households are formed for a given population. The higher the headship rate, the more households are formed, the more housing units are occupied and the more housing is needed to be built. For decades, US headship rates have been declining, suggesting the US housing market has been missing millions of households and any gains in new households can be largely attributed to population growth. This problematic trend was particularly pronounced among young adults ages 25-34. This group registered the steepest declines in their ability to create and lead independent households, highlighted by the 4 percentage point drop in their headship rates over the last two decades. Immediately before the Covid-19 pandemic, declining young adult headship rates reversed this trend and registered an uptick. At that time, it was a hopeful indicator that the troublesome trend of rising shares of young adults living with parents, relatives or sharing house with roommates finally reversed. Then, the rollercoaster 2020 and 2021 saw headship gains among young adults first eliminated early in the pandemic, only to be later restored to the pre-pandemic levels. It is worth noting that while headship rates for adults 35-64 years of age are now higher than they were before the Covid-19 pandemic, they remain historically low across every age group. It remains to be seen whether recent headship gains fueled by the pandemic housing boom can be sustained through the ongoing housing slowdown and probable recession. The data used in this post come from the 2021 CPS ASEC. Typically, NAHB Economics relies on the American Community Survey (ACS) to estimate headship rates across all age groups. The ACS is less timely but has a much larger sample and aligns better with the Decennial Census. Even though the ACS estimates show lower headship rates across all age groups, the long-run trends are similar in both surveys. Because of data collection issues during the early pandemic, the 2020 ACS data are largely unreliable, and the 2021 data will only become available in the Fall of this year. In the interim, the CPS estimates provide an early indicator where the U.S. headship rates are heading. Related ‹ High Home Prices Is Main Reason Active Buyers Can’t Seal the DealTags: headship rates, home building, household formation, housing, young adults

Headship Stabilizes During the Pandemic Housing Boom2022-08-05T08:15:34-05:00

High Home Prices Is Main Reason Active Buyers Can’t Seal the Deal

2022-08-04T09:16:36-05:00

By Rose Quint on August 4, 2022 • An earlier post revealed that 63% of buyers who were actively engaged in the process of finding a home in the 2nd quarter of 2022 have spent 3+ months searching for a home without success. The most common reason these long-term searchers cite for not having bought by now is their inability to find an affordable home (43%).  In second place is getting outbid by other buyers (35%), followed by the inability to find a home in a desirable neighborhood (32%), or a home with desirable features (29%). When asked what they are most likely to do next if still unable to find a home in the next few months, 46% of active buyers searching for 3+ months said they will continue looking for the ‘right’ home in the same location (down from 52% a quarter earlier); 38% will expand their search area (unchanged), 30% will accept a smaller/older home (up from 20%), and 26% will buy a more expensive home (up from 19%) Meanwhile, the share who plan to give up their home search until next year or later was unchanged at 25% between the first and second quarters of 2022.  This share has increased or remained flat in each of the past four quarters. **Results come from the Housing Trends Report (HTR) – a research product created by the NAHB Economics team with the goal of measuring prospective home buyers’ perceptions about the availability and affordability of homes for-sale in their markets.  The HTR is produced quarterly to track changes in buyers’ perceptions over time.  All data are derived from national polls of representative samples of American adults conducted for NAHB by Morning Consult.  Results are seasonally adjusted.  A description of the poll’s methodology and sample characteristics can be found here.  This is the final post in a series of six highlighting results for the 2nd quarter of 2022. Related ‹ Housing Share of GDP Edges Lower in the Second Quarter of 2022Tags: housing economics, housing trends report

High Home Prices Is Main Reason Active Buyers Can’t Seal the Deal2022-08-04T09:16:36-05:00

More Prospective Buyers Are Actively Searching for a Home

2022-08-03T09:18:22-05:00

By Rose Quint on August 3, 2022 • The share of prospective home buyers who are actively engaged in the process to buy a home rose to 49% in the second quarter of 2022, after declining for three straight quarters.  The pivot is likely driven by less competition from buyers who have exited the market, which has encouraged many of those remaining to become active buyers. Except for the South, the share of prospective buyers actively searching for a home rose in every region between the first and second quarters of 2022: Northeast (50% to 54%), Midwest (40% to 51%), and West (46% to 57%). In the second quarter of 2022, the share of active buyers who have been looking for a home for 3+ months fell to 63%, down from 67% in the previous quarter.  The share is at its lowest point in almost two years (since the third quarter of 2020, when it was 62%). Before the pandemic (between the first quarters of 2018 and 2020), fewer than 60% of active buyers shopped for a home for 3+ months. **Results come from the Housing Trends Report (HTR) – a research product created by the NAHB Economics team with the goal of measuring prospective home buyers’ perceptions about the availability and affordability of homes for-sale in their markets.  The HTR is produced quarterly to track changes in buyers’ perceptions over time.  All data are derived from national polls of representative samples of American adults conducted for NAHB by Morning Consult.  Results are seasonally adjusted.  A description of the poll’s methodology and sample characteristics can be found here.  This is the fifth in a series of six posts highlighting results for the 2nd quarter of 2022. Related ‹ Second Quarter of 2022 Homeownership Rate at 65.8%Tags: housing economics, housing trends report

More Prospective Buyers Are Actively Searching for a Home2022-08-03T09:18:22-05:00

The Mix of Home Buyers Is Changing, Leading to Improved Affordability

2022-08-02T09:17:42-05:00

By Rose Quint on August 2, 2022 • For the first time since 2020, affordability expectations improved in the second quarter of 2022.  After rising steadily for five straight quarters, the share of buyers who can only afford a minority of the homes for sale in their markets declined to 77%, down from 81% a quarter earlier.  Conversely, the share able to afford at least half the homes available rose from 19% to 23%.  A likely reason for the pivot is that the exit of 1st-time home buyers from the market is tilting the composition of the pool of buyers towards wealthier buyers better able to absorb recent increases in mortgage rates. Affordability expectations between the first and second quarters of 2022 improved in two regions.  In the West, the share of buyers only able to afford a minority of homes dropped from 78% to 70%; and in the Northeast, from 77% to 73%.  The share edged up in the Midwest (83% to 84%) and in the South (79% to 82%). **Results come from the Housing Trends Report (HTR) – a research product created by the NAHB Economics team with the goal of measuring prospective home buyers’ perceptions about the availability and affordability of homes for-sale in their markets.  The HTR is produced quarterly to track changes in buyers’ perceptions over time.  All data are derived from national polls of representative samples of American adults conducted for NAHB by Morning Consult.  Results are seasonally adjusted.  A description of the poll’s methodology and sample characteristics can be found here.  This is the fourth in a series of six posts highlighting results for the 2nd quarter of 2022. Related ‹ Private Residential Spending Declines in JuneTags: housing economics, housing trends report

The Mix of Home Buyers Is Changing, Leading to Improved Affordability2022-08-02T09:17:42-05:00

Some Buyers Turning to New Construction

2022-07-29T09:23:55-05:00

By Rose Quint on July 29, 2022 • After falling steadily for five quarters, the popularity of new homes rebounded in the second quarter of 2022, as 21% of prospective buyers reported looking for a newly-built home – up from 19% a quarter earlier.  A possible reason for this pivot is the recent growth in the inventory of new homes for-sale, while the supply of existing homes on the market remains very tight. Regionally, the increased interest for new homes is driven entirely by the West, where the share of buyers looking to buy a newly-built home rose from 24% in the first quarter of 2022 to 30% in the second quarter. In contrast, the share declined in all other regions during this period. * Results come from the Housing Trends Report (HTR) – a research product created by the NAHB Economics team with the goal of measuring prospective home buyers’ perceptions about the availability and affordability of homes for-sale in their markets.  The HTR is produced quarterly to track changes in buyers’ perceptions over time.  All data are derived from national polls of representative samples of American adults conducted for NAHB by Morning Consult.  Results are seasonally adjusted.  A description of the poll’s methodology and sample characteristics can be found here. This is the second in a series of six posts highlighting results for the 2nd quarter of 2022.  Related ‹ The Second Quarter of Negative Growth: A Recession?Tags: housing economics, housing trends report

Some Buyers Turning to New Construction2022-07-29T09:23:55-05:00

The Second Quarter of Negative Growth: A Recession?

2022-07-28T11:16:27-05:00

The U.S. economy definitively slowed in the first half of 2022 as the Federal Reserve tightened financial conditions. Real GDP fell for the second straight quarter, while the Fed raised interest rates by 75 basis points for the second consecutive month to reduce inflation pressure. Despite these negative elements, the job market remained solid amid inflation concerns and growing recession fears. However, while an “official” recession will be called by the NBER, a housing downturn is clearly underway. The NBER definition of a recession requires a broad range of economic variables to show declines, including economic growth and labor market conditions. Such a call if often made quarters after the recession has begun. Nonetheless, during the second quarter of 2022 the housing component of GDP exerted the largest drag on headline GDP growth, excepting the second quarter of 2020, since the third quarter of 2010. According to the “advance” estimate  released by the Bureau of Economic Analysis (BEA), real gross domestic product (GDP) decreased at an annual rate of 0.9% in the second quarter, following a 1.6% decrease in the first quarter of 2022. It is the second consecutive quarter of negative growth. This quarter’s decrease reflected decreases in private inventory investment, residential fixed investment, federal government spending, and state and local government spending, partially offset by increases in exports and personal consumption expenditures (PCE). In the second quarter, private inventory investment declined by $107 billion, subtracting 2.0 percentage points from GDP growth. Both nonresidential fixed investment (-0.1%) and residential fixed investment (RFI) (-14.0%) dropped in the second quarter. The decrease in nonresidential fixed investment reflected decreases in structures and equipment, which were mostly offset by an increase in intellectual property products (+9.2%). Within residential fixed investment, single-family structures declined 4.2% at an annual rate, multifamily structures declined 5.6% and other structures (specifically brokers’ commissions) decreased 22.2%. Meanwhile, federal government spending decreased 3.2% in the second quarter, reflecting a decrease in nondefense spending on consumption expenditures, while state and local government spending declined 1.2%, led by a decrease in investment in structures. Imports, which are a subtraction in the calculation of GDP, increased due to an increase in services (+21.2%). Consumer spending rose at an annual rate of 1.0% in the second quarter, compared to a 1.8% increase in the first quarter. Expenditures on services increased 4.1% at an annual rate, while goods spending decreased 4.4% at an annual rate, led by food and beverages (-11.7%). Net exports rose by $70 billion in the second quarter, contributing 1.4 percentage points to GDP growth. Related ‹ Federal Reserve Raises by 75 Basis Points and Notes Slowing EconomyTags: economics, gdp, macroeconomics, macroeconomy, residential fixed investment

The Second Quarter of Negative Growth: A Recession?2022-07-28T11:16:27-05:00

New Home Sales Plunge in June

2022-07-26T23:18:50-05:00

By Danushka Nanayakkara-Skillington on July 26, 2022 • New single-family home sales declined in June due to rising mortgage rates and worsening affordability conditions. Per Freddie Mac, the 30-year fixed rate mortgage was 5.10% at the end of May and climbed to 5.70% by the end of June. The U.S. Department of Housing and Urban Development and the U.S. Census Bureau estimated sales of newly built, single-family homes in June at a 590,000 seasonally adjusted annual pace, which is a 8.1% decline over the downwardly revised May rate of 642,000 and is 17.4% below the June 2021 estimate of 714,000. Sales-adjusted inventory levels are at an elevated 9.3 months’ supply in June. The count of completed, ready-to-occupy new homes is just 39,000 homes nationwide. Moreover, sales are increasingly coming from homes that have not started construction, with that count up 25.1% year-over-year, not seasonally adjusted (NSA). The median sales price dipped to $402,400 in June, down 9.5% compared to May, but up 7.4% compared to a year ago. Nationally, on a year-to-date basis, new home sales are down 13.4% for the first half of 2022. Regionally, on a year-to-date basis, new home sales fell in all four regions, down 12.1% in the Northeast, 24.8% in the Midwest, 12.6% in the South and 9.6% in the West. Related ‹ Housing Demand Flattens as 1st-Time Buyers RetreatTags: economics, home building, housing, new home sales, sales, single-family

New Home Sales Plunge in June2022-07-26T23:18:50-05:00

About My Work

Phasellus non ante ac dui sagittis volutpat. Curabitur a quam nisl. Nam est elit, congue et quam id, laoreet consequat erat. Aenean porta placerat efficitur. Vestibulum et dictum massa, ac finibus turpis.

Recent Works

Recent Posts