Housing Share of GDP: 16.4%

2022-01-27T11:26:02-06:00

Thanks to a surge in residential investment during 2020 and ongoing strength in 2021, housing’s share of GDP remains elevated compared to most of the post-Great Recession period. Due to the pandemic, market conditions evolved with a renewed focus on the importance of home, a shifting geography of housing demand, and a lack of for-sale inventory. Housing continued to expand in 2021, although as the rest of the economy recovered, the housing share of the economy has tapered. For the fourth quarter of 2021, overall GDP growth came in at a 6.9% growth rate, driven by inventory investment. Residential fixed investment (home building and remodeling) was effectively flat. During the fourth quarter of 2021, housing’s share of GDP stood at 16.4%, somewhat off a 14-year high of 17.8% during the second quarter of 2020. For the fourth quarter, the more cyclical home building and remodeling component – residential fixed investment – dipped to 4.6% of GDP. Home construction will continue to expand as the consequences of the virus crisis are likely to lead to a reversal for declining home size trends, a greater need for additional home office space, and more working from home. Moreover, the U.S. continues to experience a deficit of single-family housing. However, higher interest rates due to tightening monetary policy will increase housing affordability challenges reducing momentum for single-family construction. Housing-related activities contribute to GDP in two basic ways. The first is through residential fixed investment (RFI). RFI is effectively the measure of the home building, multifamily development, and remodeling contributions to GDP. It includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes and brokers’ fees. For the fourth quarter, RFI was 4.6% of the economy, recording a $1.11 trillion seasonally adjusted annual pace. The second impact of housing on GDP is the measure of housing services, which includes gross rents (including utilities) paid by renters, and owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units) and utility payments. The inclusion of owners’ imputed rent is necessary from a national income accounting approach, because without this measure, increases in homeownership would result in declines for GDP. For the fourth quarter, housing services represented 11.8% of the economy or $2.8 trillion on seasonally adjusted annual basis. Taken together, housing’s share of GDP was 16.4% for the quarter. Historically, RFI has averaged roughly 5% of GDP while housing services have averaged between 12% and 13%, for a combined 17% to 18% of GDP. These shares tend to vary over the business cycle. However, the housing share of GDP lagged during the post-Great Recession period due to underbuilding, particularly for the single-family sector. The recent expansion in housing activity has increased these shares to near historic norms. Related ‹ Inventories Boost Fourth Quarter GDP GrowthTags: economics, home building, housing, housing share of GDP, multifamily

Housing Share of GDP: 16.4%2022-01-27T11:26:02-06:00

Fed Rate Hike Coming in March

2022-01-26T15:19:59-06:00

At the conclusion of its January policy meeting, the Federal Open Market Committee strongly signaled that it will undertake its first, post-covid increase of the federal funds rate in March. The Fed is tightening monetary policy in response to the highest inflation readings in nearly 40 years. These inflationary pressures have increased both consumer costs and businesses input costs, including those faced by the residential construction sector. Today’s policy announcement noted clearly: With inflation well above 2 percent and a strong labor market, the Committee expects it will soon be appropriate to raise the target range for the federal funds rate. Housing market stakeholders should be prepared for four 25 basis point federal funds rate increases over the course of 2022. It is possible that the first rate hike could be larger than 25 basis points, given the current overshoot of inflation. However, while possible, this seems less likely than not given the more preferred, orderly approach the Fed has been telegraphing for moving from accommodative monetary policy to tighter, anti-inflationary policy. Additionally, the Fed will reverse course from quantitative easing to balance sheet reduction. The Fed’s announcement today indicates that bond purchases, including mortgage-backed securities, will end in March. Balance sheet reduction should begin after the first rate hike, perhaps late Summer or early Fall. How large this balance sheet reduction will be is uncertain. The Fed currently holds approximately $9 trillion in financial assets, the previous purchase of which has held long-term interest rates lower than they otherwise would have been. It is important to note that there is not a direct connection between federal fund rate hikes and changes in long-term interest rates. Indeed, during the last tightening cycle, the federal funds target rate increased from November 2015 (with a top rate of just 0.25%) to November 2018 (2.5%), a 225 basis point expansion. However, during this time mortgage interest rates increased by a proportionately smaller amount, rising from approximately 3.9% to just under 4.9%. Nonetheless, the ongoing policy pivot will yield successively higher interest rates in 2022 due to tighter monetary policy. This change will reduce housing affordability and again emphasizes the need for policymakers to enact solutions to fix the nation’s supply-chains. With respect to this item, a contrarian take on monetary policy would point out that higher interest rates will not solve ongoing production and logistical challenges for supply-chains. In fact, higher rates could make them worse and continue to yield higher costs for the economy. Thus, monetary policy is not the only way to fight inflation. Related ‹ New Home Sales Increase in DecemberTags: economics, FOMC, home building, housing

Fed Rate Hike Coming in March2022-01-26T15:19:59-06:00

Strong Year-over-Year Gains for Construction Job Openings

2022-01-04T10:17:45-06:00

The construction labor market remains tight, as the levels of quits rise. The count of open construction jobs declined to 345,000 unfilled positions in November, after recording the highest measure in the history of the data series (going back to late 2000), 445,000 in October. The housing market remains underbuilt and requires additional labor, lots and lumber and building materials to add inventory. Hiring in the construction sector remained solid in November, rising to a 5.6% growth rate. The post-virus peak rate of hiring occurred in May 2020 (10.3%) as a rebound took hold in home building and remodeling. Hiring slowed in early 2021, with the exception of a weather-related rebound in March 2021. While hiring has been impeded due to a lack of workers, jobs gains have increased during the second half of 2021. Construction sector layoffs ticked up in November to a 2.4% rate. In April 2020, the layoff rate was 10.9%. Since that time however, the sector layoff rate has been below 3%, with the exception of February 2021 due to weather effects. The rate has trended lower in 2021 due to the skilled labor shortage. The job openings rate in construction edged down to 4.4% in November, with 345,000 open positions in the sector. This is significantly higher than the 261,000 count recorded a year ago. The number of job quits for the overall economy continues to rise as the Great Resignation continues. More than 4.5 million workers quit their jobs in November. Quits increased somewhat in construction, rising to 207,000 in November, a data series high. Looking forward, the construction job openings rate is likely to see increased upward pressure as both the residential and nonresidential construction sectors trend higher. Attracting skilled labor will remain a key objective for construction firms in the coming quarters and will become more challenging as the labor market strengthens and the unemployment rate declines. Related ‹ Private Residential Spending Rises in November 2021Tags: economics, employment, home building, housing, JOLTS

Strong Year-over-Year Gains for Construction Job Openings2022-01-04T10:17:45-06:00

New Home Sales Jump in November on High Consumer Demand

2021-12-23T10:20:39-06:00

By Danushka Nanayakkara-Skillington on December 23, 2021 • New single-family home sales rose in November as housing demand was supported by low interest rates and strong consumer demand, despite the ongoing building materials challenges impacting the housing industry. The U.S. Department of Housing and Urban Development and the U.S. Census Bureau estimated sales of newly built, single-family homes in November at a 744,000 seasonally adjusted annual pace, a 12.4% gain over downwardly revised October rate of 662,000 and is 14.0% below the November 2020 estimate of 865,000. The gains for new home sales are consistent with the NAHB/Wells Fargo HMI, which edged up to 84 in December, demonstrating that housing is a leading sector for the economy. Sales-adjusted inventory levels are at a balanced 6.5 months’ supply in November. The count of completed, ready-to-occupy new homes is just 40,000 homes nationwide. Median sales price continues to increase in November at $416,900. This is up 18.8% compared to the November 2020 median sales price of $350,800. Moreover, sales are increasingly coming from homes that have not started construction, with that count up 75.4% year-over-year, not seasonally adjusted (NSA). These measures point to continued gains for single-family construction ahead. Regionally on a year-to-date basis, new home sales declined in all four regions; 1.3% in the Northeast, 4.5% in the South, 5.3% in the Midwest, and 12.5% in the West. Related ‹ Home Building Shows Ongoing Growth in Second Home CountiesTags: economics, home building, housing, new home sales, sales, single-family

New Home Sales Jump in November on High Consumer Demand2021-12-23T10:20:39-06:00

Federal Reserve Outlook: Housing Considerations

2021-12-15T18:20:20-06:00

By Robert Dietz on December 15, 2021 • At the conclusion of its December policy meeting, the Federal Reserve announced changes to its outlook and projections that move monetary policy further away from the accommodative stance that has supported the economic rebound from the 2020 recession. This pivot toward tighter policy is a direct result of ongoing, elevated inflation data. Today’s announcement makes several changes to both the Fed’s economic outlook and its implied monetary policy path: Acceleration of tapering of purchases of mortgage-backed securities and Treasuries The central bank will double the pace of tapering with an anticipated conclusion of bond purchases in March 2022 Retirement of “transitory” inflation expectations The Fed’s outlook notes that supply-demand imbalances are contributing to “elevated levels of inflation” The Fed’s economic projections increased its estimate for 2021 inflation (under the core PCE measure) from 3.7% to 4.4% As an indication that inflation will persist well into 2022, the projection for inflation next year increased from 2.3% to 2.7% Higher interest rates sooner The Fed did not announce a change in the federal funds target rate today However, today’s announcement/outlook suggests three 25 basis point rate hikes in 2022 and three more in 2023 This implied tightening is consistent with our existing forecast of a 2% 10-year Treasury rate near the end of 2022. This higher rate also implies the 30-year mortgage rate rising to somewhat higher than 3.6% by the end of next year. It is important to note that there is not a direct connection between federal fund rate hikes and changes in long-term interest rates. Indeed, during the last tightening cycle, the federal funds target rate increased from November 2015 (with a top rate of just 0.25%) to November 2018 (2.5%), a 225 basis point expansion. However, during this time mortgage interest rates increased by a proportionately smaller amount, rising from approximately 3.9% to just under 4.9%. Nonetheless, today’s policy pivot, in response to increased inflation data and inflation expectations, will yield higher interest rates in 2022 due to tighter monetary policy. This change will reduce housing affordability and again emphasizes the need for policymakers to enact solutions to fix the nation’s supply-chains. asdas Related ‹ Paint, Steel, and Services Prices Set Records, Drive PPI for Residential Construction Inputs HigherTags: economics, FOMC, home building, housing, interest rates

Federal Reserve Outlook: Housing Considerations2021-12-15T18:20:20-06:00

Construction Job Openings Surge

2021-12-08T12:24:44-06:00

By Robert Dietz on December 8, 2021 • The labor market continues to tighten, especially for the construction industry. The count of open construction jobs increased to 410,000 unfilled positions in October, the highest measure in the history of the data series (going back to late 2000). The housing market remains underbuilt and requires additional labor, lots and lumber and building materials to add inventory. Hiring in the construction sector remained solid in October, rising to a 5.0% rate. The post-virus peak rate of hiring occurred in May 2020 (10.3%) as a rebound took hold in home building and remodeling. Hiring slowed in early 2021, with the exception of a weather-related rebound in March 2021. While hiring has been impeded due to a lack of workers, jobs gains have increased during the second half of this year. Construction sector layoffs remained near a 4-year low, at a 1.8% rate in October. In April 2020, the layoff rate was 10.9%. Since that time however, the sector layoff rate has been below 3%, with the exception of February 2021 due to weather effects. The rate has trended lower in 2021 due to the skilled labor shortage. The job openings rate in construction surged to 5.4% in October, with 410,000 open positions in the sector. This is significantly higher than the 253,000 count recorded a year ago. Looking forward, the construction job openings rate is likely to see increased upward pressure as both the residential and nonresidential construction sectors trend higher. Attracting skilled labor will remain a key objective for construction firms in the coming quarters and will become more challenging as the labor market strengthens and the unemployment rate declines. Related ‹ Strong Regional Growth Amid Lessened Suburban Shift: Q3 2021 HBGITags: economics, home building, housing, JOLTS

Construction Job Openings Surge2021-12-08T12:24:44-06:00

Construction Loans Slightly More Available, But at Higher Rates

2021-11-19T11:18:51-06:00

In the third quarter of 2021, effective interest rates increased on all four categories of loans tracked in NAHB’s Survey on Acquisition, Development & Construction (AD&C).  This result reverses a general downward trend that had prevailed since the third quarter of last year.  In the third quarter of 2021, 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 from 6.15 in the second quarter of 2021 to 6.50 percent in the third quarter of 2021 on loans for land acquisition, from 7.15 to 8.33 percent on loans for land development, from 8.09 to 8.55 percent on loans for pre-sold single-family construction, and from 7.40 to 8.37 percent on loans for speculative 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 loan.  On three categories of AD&C loans, the average contract rate and average points both increased in the third quarter.  On land acquisition loans, the contract rate increased from 4.63 to 4.74 percent while the initial points increased from 0.69 to 0.88.  On development loans, the contract rate increased from 4.63 to 4.74 percent while the points increased from 0.64 to 0.89.  And on loans for pre-sold single-family construction, the contract rate increased from 4.32 to 4.49 percent while the points increased from 0.54 to 0.77.  On the remaining category of AD&C loans (for speculative single-family construction) a reduction in the average contract rate—from 4.94 to 4.85 percent—was more than offset by a substantial increase in the initial points charged—from 0.66 to 0.87 percent. The NAHB survey also produces a net easing index that summarizes the change in credit conditions on AD&C loans, similar to the net easing index constructed from the Federal Reserve’s survey of senior loan officers (SLOOS).  In the third quarter of 2021, the NAHB and Fed indices were in close agreement with each other, both indicating a modest easing of credit.  The NAHB index stood at 11.0 while the Fed index was 9.4.  These results are quite similar to those from the second quarter, when the NAHB index was 9.7 and the Fed index was 7.0. The NAHB net easing index uses information from questions that ask builders and developers if availability of credit has gotten better, worse, or stayed the same since the previous quarter.  In the third quarter of 2021, 13 percent of the NAHB builders said availability of credit for land acquisition had gotten better, compared to 6 percent who said it had gotten worse.  For land development, 14 percent said credit conditions improved, compared to 7 percent who said it had gotten worse.  Finally, 21 percent of builders reported that the availability of credit for single-family construction had improved, compared to only two percent who said it had gotten worse. Availability and rates on loans for residential development are of particular interest in the current environment, where home builders are experiencing record shortages of buildable lots. Related ‹ Gains for Custom Home BuildingTags: ad&c lending, ad&c loans, ADC, construciton loans, construction lending, credit conditions, economics, home building, housing, interest rates, lending, single-family

Construction Loans Slightly More Available, But at Higher Rates2021-11-19T11:18:51-06:00

Gains for Custom Home Building

2021-11-19T08:16:36-06:00

By Robert Dietz on November 19, 2021 • NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates custom home building matched the best quarter for construction starts since the spring of 2008 during the third quarter of 2021. There were 56,000 total custom building starts during the third quarter of the year. This marks a 5.7% gain from the third quarter of 2020. Over the last four quarters, custom housing starts totaled 190,000 units, an 8% gain from the prior four-quarter total. Despite these gains, the market share for custom home building has declined as other forms of home building have expanded more rapidly. As measured on a one-year moving average, the market share of custom home building, in terms of total single-family starts, held steady at 16.6%. This is down from a cycle high 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. Related ‹ Multifamily Missing Middle Production LagsTags: custom, custom building, custom home building, home building, housing, single-family

Gains for Custom Home Building2021-11-19T08:16:36-06:00

Year-over-Year Gains for Townhouse Construction

2021-11-18T08:17:29-06:00

By Robert Dietz on November 18, 2021 • According to NAHB analysis of the most recent Census data of Starts and Completions by Purpose and Design, townhouse construction in the third quarter of 2021 continued to show year-over-year construction increases. As housing demand has shifted to more suburban and exurban areas and housing affordability headwinds persist, medium-density construction lagged for much of 2020. However, demand for medium density neighborhoods is now returning as the economy reopens. During the third quarter of 2021, single-family attached starts totaled 35,000, which is 16.7% higher than the third quarter of 2020. Over the last four quarters, townhouse construction starts totaled 143,000 units, 38% higher than the prior four quarter total (104,000). Using a one-year moving average, the market share of new townhouses increased to 12.6% of all single-family starts. This represents a rebound after recent declines. 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% of total single-family construction. This high point was set after a fairly consistent increase in the share beginning in the early 1990s. Despite relative weakness in 2020, 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, while seeking to avoid high-density communities that depend on mass transit and elevators in the wake of the virus-related lockdowns of the spring of 2020. Related ‹ Interest Rate Increases Drive Refinancing DeclinesTags: economics, home building, housing, single-family attached, starts, townhomes, townhouse

Year-over-Year Gains for Townhouse Construction2021-11-18T08:17:29-06:00

Construction Layoff Rate Dives

2021-11-12T10:20:37-06:00

By Robert Dietz on November 12, 2021 • The labor market continues to tighten. In the September BLS Job Openings and Labor Turnover Survey (JOLTS) data, the national number of job quits for all sectors (4.4 million) was up 34% year-over-year as worker churn accelerates. Total national job openings stands at 10.4 million. What had been, in prior years, a challenge in certain sectors, like construction, continues as a broad labor access issue as businesses seek workers as the economy expands. The count of open construction jobs declined somewhat to 333,000 unfilled positions in September. The housing market remains underbuilt and requires additional labor, lots and lumber and building materials to add inventory. Overall, hiring in the construction sector remained solid in September at a 4.7% rate. The post-virus peak rate of hiring occurred in May 2020 (10.3%) as a rebound took hold in home building and remodeling. Hiring has generally slowed since that time, with the exception of a weather-related rebound in March 2021. Hiring has been impeded due to a lack of workers. Construction sector layoffs declined significantly to near a 4-year low, at a 1.6% rate. In April 2020, the layoff rate was 10.9%. Since that time however, the sector layoff rate has been below 3%, with the exception of February 2021 due to weather effects. The job openings rate in construction edged down to 4.3% in September, with 333,000 open positions in the sector. This is higher than the 232,000 count recorded a year ago. Looking forward, the construction job openings rate is likely to see increased upward pressure as both the residential and nonresidential construction sectors trend higher. Attracting skilled labor will remain a key objective for construction firms in the coming quarters and will become more challenging as the labor market strengthens and the unemployment rate declines. Related ‹ Housing Affordability Holds Steady but Supply-Side Challenges PersistTags: economics, employment, home building, housing, JOLTS

Construction Layoff Rate Dives2021-11-12T10:20:37-06:00

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