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

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

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

New Home Sales Increase in July


By Robert Dietz on August 23, 2023 • Low existing inventory and solid demand more than offset rising mortgage rates and elevated construction costs to boost new home sales last month. Sales of newly built, single-family homes in July increased 4.4% to a 714,000 seasonally adjusted annual rate from a downwardly revised reading in June, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in July was up 31.5% from a year ago. New home sales were solid in July because of an ongoing housing deficit in the U.S. and a lack of resales stemming from many home owners electing to stay put to preserve their low mortgage rates. However, despite this monthly uptick, new home sales will likely weaken in August as higher interest rates price out prospective buyers. Mortgage rates increased from 6.7% at the start of July to above 7% in August. New single-family home inventory in July was 437,000, up 4.8% compared to a year ago. This represents a 7.3 months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced. Of the total home inventory, including both new and resale homes, 31% of homes available for sale are newly built. 17% of new home inventory was completed ready-to-occupy homes. This is up from approximately 9% from a year ago. The median new home sale price in July was $436,700, down roughly 9% compared to a year ago. Pricing is down both due to builder incentive use and a shift towards building slightly smaller homes. Regionally, on a year-to-date basis, new home sales are up 5.0% in the Northeast, 1.0% in the Midwest and 3.5% in the South. New home sales are down 8.1% in the affordability-challenged West. Related ‹ Missing Middle Construction WeakensTags: home building, housing, new home sales, sales

New Home Sales Increase in July2023-08-23T10:30:18-05:00

Missing Middle Construction Weakens


By Robert Dietz on August 23, 2023 • The missing middle construction sector includes development of medium-density housing, such as townhouses, duplexes and other small multifamily properties. The multifamily segment of the missing middle (apartments in 2- to 4-unit properties) has disappointed since the Great Recession. For the second quarter of 2023, there were just 3,000 2- to 4-unit housing unit construction starts. This is down from a year prior. As a share of all multifamily production, 2- to 4-unit development was just above 2% of the total for the second quarter. 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 ‹ Existing Home Sales Slide to 6-Month LowTags: home building, housing, missing middle, multifamily

Missing Middle Construction Weakens2023-08-23T08:15:18-05:00

Declines for Custom Home Building


By Robert Dietz on August 18, 2023 • NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates custom home building gained market share during recent quarters but experienced a drop for construction starts. There were 49,000 total custom building starts during the second quarter of the year. This marks almost an 8% decline compared to the second quarter of 2022, consisting with weakness experienced throughout the home building sector. Over the last four quarters, custom housing starts totaled a solid 189,000 homes, a 7% decline compared to the prior four quarter total (204,000). After market share declines due to a rise in spec building in the wake of the pandemic, the market share for custom homes has increased. As measured on a one-year moving average, the market share of custom home building, in terms of total single-family starts, has increased to 21%. However, this is down from a prior cycle peak of 31.5% set during the second quarter of 2009. Note that this definition of custom home building does not include homes intended for sale, so the analysis in this post uses a narrow definition of the sector. It represents home construction undertaken on a contract basis for which the builder does not hold tax basis in the structure during construction. Related ‹ Multifamily Developer Confidence in Positive Territory for Second QuarterTags: custom building, custom home building, home building, housing, single-family

Declines for Custom Home Building2023-08-18T08:15:36-05:00

Flat Readings for Townhouse Construction


By Robert Dietz on August 17, 2023 • According to NAHB analysis of the most recent Census data of Starts and Completions by Purpose and Design, during the second quarter of 2023, single-family attached starts totaled 38,000, which is flat relative to the second quarter of 2022. Nonetheless, over the last four quarters, townhouse construction starts totaled a solid 141,000 homes, which is almost 5% lower than the prior four-quarter period. Using a one-year moving average, the market share of newly-built townhouses stood at 16.1% of all single-family starts for the second quarter. Following a strong 2022, townhouse construction cooled at the start of the year, continuing its trend of lagging the broader home building market by a quarter or two. The four-quarter moving average market share is nonetheless the highest since 1985. Prior to the current cycle, the peak market share of the last two decades for townhouse construction was set during the first quarter of 2008, when the percentage reached 14.6%, on a one-year moving average basis. This high point was set after a fairly consistent increase in the share beginning in the early 1990s. The long-run prospects for townhouse construction remain positive given growing numbers of homebuyers looking for medium-density residential neighborhoods, such as urban villages that offer walkable environments and other amenities. Related ‹ Slight Decline for Single-Family Built-for-RentTags: economics, home building, housing, townhouse, townhouses

Flat Readings for Townhouse Construction2023-08-17T08:28:42-05:00

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