Slower Growth for AD&C Loans

2023-06-01T11:24:01-05:00

By Robert Dietz on June 1, 2023 • Despite some negative reporting about private builder access to acquisition, development and construction (AD&C) financing, the volume of total outstanding loans posted a gain during the first quarter of 2023, albeit at the slowest growth rate since the end of 2020. Nonetheless, interest rates for these loans have increased as the Fed has raised the federal funds rate. The volume of 1-4 unit residential construction loans made by FDIC-insured institutions increased by just 0.6% during the first quarter. The volume of loans increased by $636 million for the quarter. This loan volume expansion places the total stock of home building construction loans at $105.4 billion, a post-Great Recession high. On a year-over-year basis, the stock of residential construction loans is up 14%. Since the first quarter of 2013, the stock of outstanding home building construction loans has grown by 159%, an increase of more than $64 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 48% 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 14% from peak lending. For the first quarter, these loans posted a 3.2% increase. Related ‹ Despite Headwinds, Job Openings RiseTags: ADC, home building, housing, single-family

Slower Growth for AD&C Loans2023-06-01T11:24:01-05:00

Lack of Resales Provides Boost to New Home Sales in April

2023-05-23T10:22:06-05:00

Stabilizing mortgage rates and a lack of resale inventory provided a boost for new home sales in April, even as builders continue to wrestle with rising costs stemming from shortages of transformers and other building materials and a persistent lack of construction workers. Sales of newly built, single-family homes in April increased 4.1% to a 683,000 seasonally adjusted annual rate from a downwardly revised reading in March, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This is the highest level since March 2022. However, sales are down in 2023 thus far by 9.7%. Sales may weaken in the months ahead given the rise for interest rates at the end of May. A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the April reading of 683,000 units is the number of homes that would sell if this pace continued for the next 12 months. New single-family home inventory increased 0.2% in April and remained elevated at a 7.6 months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced. However, the lack of resale, existing home inventory means that overall inventory for the single-family market remains tight. April’s data showed a jump for new homes available for sale and sold that had not started construction. Sales of homes not started construction reached their highest mark in more than a year.  Homes available for sale that had not started construction were at the highest pace since October of last year. This reflects an increase in the spec home building market. The median new home sale price fell in April to $420,800 and was down 8% compared to a year ago. The report showed growth in the lower price ranges, with 9,000 sales in the $200,000-$299,999 price range in April 2023, compared to just 4,000 sales a year prior. The $300,000-$399,999 price bracket grew by 14,000 sales in that same time frame. Regionally, on a year-to-date basis, new home sales fell in all regions, down 19.2% in the Northeast, 9.8% in the Midwest, 0.7% in the South and 27.5% in the West. Related ‹ Multifamily Built-for-Rent Share Remains ElevatedTags: economics, home building, housing, sales, single-family

Lack of Resales Provides Boost to New Home Sales in April2023-05-23T10:22:06-05:00

New Single-Family Home Size Trending Lower

2023-05-22T08:19:57-05:00

By Robert Dietz on May 22, 2023 • An expected impact of the virus crisis is a need for more residential space, as people use homes for more purposes including work. Home size correspondingly increased in 2021 as interest rates reached historic lows. However, as interest rates increased in 2022, and housing affordability worsened, the demand for home size has trended lower. According to first quarter 2023 data from the Census Quarterly Starts and Completions by Purpose and Design and NAHB analysis, median single-family square floor area registered at 2,261 square feet. Average (mean) square footage for new single-family homes stood at 2,469 square feet. Since Great Recession lows (and on a one-year moving average basis), the average size of a new single-family home is now 4% higher at 2,486 square feet, while the median size is 7% higher at 2,262 square feet. Home size rose from 2009 to 2015 as entry-level new construction lost market share. Home size declined between 2016 and 2020 as more starter homes were developed. After a brief increase during the post-covid building boom, home size is trending lower and will likely do so as housing affordability remains constrained. Related ‹ Employment Situation in April: State-Level AnalysisTags: home building, home size, housing, single-family, single-family size

New Single-Family Home Size Trending Lower2023-05-22T08:19:57-05:00

Custom Home Building Contracts

2023-05-19T07:36:25-05:00

By Robert Dietz on May 19, 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 notable drop for construction starts at the beginning of 2023. There were 36,000 total custom building starts during the first quarter of the year. This marks a 22% decline compared to the first quarter of 2022, matching weakness experienced throughout the home building sector. Over the last four quarters, custom housing starts totaled a solid 204,000 homes, a flat reading compared to the prior four quarter total (205,000). 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 ‹ Existing Home Sales Retreat Amid Mortgage Rate VolatilityTags: custom, custom building, custom home building, economics, home building, housing, single-family

Custom Home Building Contracts2023-05-19T07:36:25-05:00

Townhouse Construction Cools

2023-05-18T08:15:52-05:00

By Robert Dietz on May 18, 2023 • According to NAHB analysis of the most recent Census data of Starts and Completions by Purpose and Design, during the first quarter of 2023, single-family attached starts totaled 29,000, which is 19% lower than the first quarter of 2022. Nonetheless, over the last four quarters, townhouse construction starts totaled a strong 141,000 homes, which is only 3% lower than the prior four-quarter period. Using a one-year moving average, the market share of newly-built townhouses stood at 15.6% of all single-family starts for the first 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 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 ‹ Cooling for Single-Family Built-for-Rent ConstructionTags: economics, home building, housing, single-family, townhouse, townhouses

Townhouse Construction Cools2023-05-18T08:15:52-05:00

Cooling for Single-Family Built-for-Rent Construction

2023-05-17T12:15:13-05:00

Single-family built-for-rent construction has cooled as investor interest has pulled back on tighter financial conditions. According to NAHB’s analysis of data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, there were approximately 14,000 single-family built-for-rent (SFBFR) starts during the first quarter of 2023. This is almost 7% lower than the first quarter of 2022. However, strength earlier in 2022 means that over the last four quarters, 69,000 such homes began construction, which is a 17% increase compared to the 59,000 estimated SFBFR starts in the four quarter prior to that period. The SFBFR market is a source of inventory amid challenges over housing affordability and downpayment requirements in the for-sale market, particularly during a period when a growing number of people want more space and a single-family structure. Single-family built-for-rent construction differs in terms of structural characteristics compared to other newly-built single-family homes, particularly with respect to home size. Given the relatively small size of this market segment, the quarter-to-quarter movements typically are not statistically significant. The current four-quarter moving average of market share (7.5%) is nonetheless higher than the historical average of 2.7% (1992-2012) and set a data series high after growth in 2022. Importantly, as measured for this analysis, the estimates noted above only include homes built and held by the builder for rental purposes. The estimates exclude homes that are sold to another party for rental purposes, which NAHB estimates may represent another five percent of single-family starts based on industry surveys. Indeed, the Census data notes an elevated share of single-family homes built as condos (non-fee simple), with this share averaging 4% over recent quarters. Some, but not all, of these homes will be used for rental purposes. Additionally, it is theoretically possible some single-family built-for-rent units are being counted in multifamily starts, as a form of “horizontal multifamily,” given these units are often built on single plat of land. However, spot checks by NAHB with permitting offices indicate no evidence of this data issue occurring at scale thus far. Additionally, demand by investors for single-family rental units, new and existing, has cooled in recent months as financial conditions have tightened. This will lower the share of homes sold to investors in the quarters ahead. With the onset of the Great Recession and declines for the homeownership rate, the share of built-for-rent homes increased in the years after the recession. While the market share of SFBFR homes is small, it has clearly expanded. Given affordability challenges in the for-sale market, the SFBFR market will likely retain an elevated market share as the sector cools. Related ‹ Single-Family Starts Show Gradual Improvement in AprilTags: housing, SFBFR, single family built for rent, single-family

Cooling for Single-Family Built-for-Rent Construction2023-05-17T12:15:13-05:00

Year-over-Year Decline for Single-Family Permits in March 2023

2023-05-15T09:36:07-05:00

By Danushka Nanayakkara-Skillington on May 15, 2023 • Over the first three months of 2023, the total number of single-family permits issued year-to-date (YTD) nationwide reached 191,695. On a year-over-year (YoY) basis, this is 31.1% below the March 2022 level of 278,189. Year-to-date ending in March, single-family permits declined in all four regions. The Northeast posted a decline of 20.5%, while the West region reported the steepest decline of 40.9%. The Midwest declined by 30.2% and the South declined by 28.4% in single-family permits during this time. The South posted an increase of 17.0% in multifamily permits and while the other three regions posted declines. Multifamily permits in the West were down 7.4%, Northeast down 28.4%, and down in the Midwest by 14.7%. Between March 2022 YTD and March 2023 YTD, all the states and the District of Columbia reported declines in single-family permits ranging from 0.8% in New Jersey to 67.8% in Montana. The ten states issuing the highest number of single-family permits combined accounted for 65.7% of the total single-family permits issued. Texas, the state with the highest number of single-family permits declined 36.6% in the past 12 months while the next two highest states, Florida and North Carolina declined by 26.1% and 19.3% respectively. Year-to-date, ending in March, the total number of multifamily permits issued nationwide reached 152,417. This is 0.8% below the March 2022 level of 153,720. Between March 2022 YTD and March 2023 YTD, 25 states and the District of Columbia recorded growth, while 25 states recorded a decline in multifamily permits. North Dakota led the way with a sharp rise in multifamily permits from 25 to 429 while Hawaii had the largest decline of 78.0% from 626 to 138. The ten states issuing the highest number of multifamily permits combined accounted for 66.0% of the multifamily permits issued. 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 Mar-23 (# of units YTD, NSA) YTD % Change(compared to Mar-22) Houston-The Woodlands-Sugar Land, TX                                         11,036 -27% Dallas-Fort Worth-Arlington, TX                                           7,711 -41% Atlanta-Sandy Springs-Roswell, GA                                           5,315 -31% Phoenix-Mesa-Scottsdale, AZ                                           4,687 -53% Charlotte-Concord-Gastonia, NC-SC                                           4,533 -20% Orlando-Kissimmee-Sanford, FL                                           4,000 -19% Austin-Round Rock, TX                                           3,428 -47% Tampa-St. Petersburg-Clearwater, FL                                           3,182 -15% Nashville-Davidson–Murfreesboro–Franklin, TN                                           3,177 -34% Raleigh, NC                                           3,074 -23% For multifamily permits, below are the top ten local areas that issued the highest number of permits. Top 10 Largest MF Markets Mar-23 (# of units YTD, NSA) YTD % Change(compared to Mar-22) New York-Newark-Jersey City, NY-NJ-PA                                           8,478 -38% Dallas-Fort Worth-Arlington, TX                                           6,654 -10% Houston-The Woodlands-Sugar Land, TX                                           6,235 22% Miami-Fort Lauderdale-West Palm Beach, FL                                           5,971 171% Phoenix-Mesa-Scottsdale, AZ                                           5,824 50% Atlanta-Sandy Springs-Roswell, GA                                           4,930 30% Austin-Round Rock, TX                                           4,473 -18% Los Angeles-Long Beach-Anaheim, CA                                           3,792 1% Seattle-Tacoma-Bellevue, WA                                           3,258 -37% Jacksonville, FL                                           3,173 8% Related ‹ Lending Standards Tighten for Residential and Commercial Real Estate Loans in Q1 2023Tags: home building, multifamily, single-family, state and local markets, state permits

Year-over-Year Decline for Single-Family Permits in March 20232023-05-15T09:36:07-05:00

Steep Year-over-Year Decline for Single-Family Permits in February 2023

2023-04-14T09:18:26-05:00

By Danushka Nanayakkara-Skillington on April 14, 2023 • Over the first two months of 2023, the total number of single-family permits issued year-to-date (YTD) nationwide reached 112,131. On a year-over-year (YoY) basis, this is 34.3% below the February 2022 level of 170,716. Year-to-date ending in February, single-family permits declined in all four regions. The Northeast posted a decline of 23.6%, while the West region reported the steepest decline of 44.7%. The Midwest declined by 33.3% and the South declined by 31.5% in single-family permits during this time. The South posted an increase of 31.8% in multifamily permits and the West increased by a small margin. Multifamily permits in the Northeast were down 32.6% and down in the Midwest 14.8%. Between February 2022 YTD and February 2023 YTD, all the states and the District of Columbia reported declines in single-family permits ranging from 3.8% in New Mexico to 72.8% in Montana. The ten states issuing the highest number of single-family permits combined accounted for 66.3% of the total single-family permits issued. Texas, the state with the highest number of single-family permits declined 40.2% in the last 12 months while the next two highest states, Florida and North Carolina declined by 31.2% and 22.3% respectively. Year-to-date, ending in February, the total number of multifamily permits issued nationwide reached 100,633. This is 8.4% above the February 2022 level of 92,818. Between February 2022 YTD and February 2023 YTD, 24 states and the District of Columbia recorded growth, while 26 states recorded a decline in multifamily permits. North Dakota led the way with a sharp rise in multifamily permits from two to 316 while Maine had the largest decline of 89.3% from 748 to 80. The ten states issuing the highest number of multifamily permits combined accounted for 67.4% of the multifamily permits issued. 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 Feb-23 (# of units YTD, NSA) YTD % Change(compared to Feb-22) Houston-The Woodlands-Sugar Land, TX                                           6,269 -34% Dallas-Fort Worth-Arlington, TX                                           4,867 -38% Atlanta-Sandy Springs-Roswell, GA                                           2,945 -39% Charlotte-Concord-Gastonia, NC-SC                                           2,745 -23% Phoenix-Mesa-Scottsdale, AZ                                           2,455 -60% Orlando-Kissimmee-Sanford, FL                                           2,293 -24% Tampa-St. Petersburg-Clearwater, FL                                           1,926 -26% Austin-Round Rock, TX                                           1,908 -52% Nashville-Davidson–Murfreesboro–Franklin, TN                                           1,845 -34% New York-Newark-Jersey City, NY-NJ-PA                                           1,808 -12% For multifamily permits, below are the top ten local areas that issued the highest number of permits. Top 10 Largest MF Markets Feb-23 (# of units YTD, NSA) YTD % Change(compared to Feb-22) Dallas-Fort Worth-Arlington, TX                                           5,364 10% Houston-The Woodlands-Sugar Land, TX                                           4,910 57% Atlanta-Sandy Springs-Roswell, GA                                           4,162 83% New York-Newark-Jersey City, NY-NJ-PA                                           4,047 -38% Miami-Fort Lauderdale-West Palm Beach, FL                                           3,762 113% Los Angeles-Long Beach-Anaheim, CA                                           2,793 0% Denver-Aurora-Lakewood, CO                                           2,749 35% Phoenix-Mesa-Scottsdale, AZ                                           2,698 18% Austin-Round Rock, TX                                           2,565 -14% Seattle-Tacoma-Bellevue, WA                                           2,404 -21% Related ‹ Building Materials Prices Climb as Concrete, Transformer Shortages PersistTags: home building, multifamily, single-family, state and local markets, state permits

Steep Year-over-Year Decline for Single-Family Permits in February 20232023-04-14T09:18:26-05:00

New Home Sales Remain Relatively Flat in February

2023-03-23T10:23:51-05:00

Higher mortgage rates and home prices, as well as increased construction costs contributed to lackluster new home sales in February, but signs point to improvement later in the year. Sales of newly built, single-family homes in February increased 1.1% to a 640,000 seasonally adjusted annual rate from a downwardly revised reading in January, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. However, new home sales are down 19% compared to a year ago. Builders continue to face challenges in terms of higher interest rates, elevated construction costs, and access to critical materials like electrical transformers. Access to AD&C financing will also be a challenge for builders in the coming months due to recent banking system stress. Nonetheless, the lack of existing home inventory means demand for new homes will rise as interest rates decline over the coming quarters. Indeed, there was an increase for sales of homes not yet started construction in February. There were 15,000 such sales in February (non seasonally adjusted). This is the highest monthly total since March 2022. A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the February reading of 640,000 units is the number of homes that would sell if this pace continued for the next 12 months. New single-family home inventory fell for the fifth straight month. The February reading indicated an 8.2 months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced. However, single-family resale home inventory stands at a reduced level of 2.5 months per NAR. The median new home sale price rose in February to $438,200, up 2.5% compared to a year ago. Elevated costs of construction have contributed to a rise in home prices. A year ago, roughly 15% of new home sales were priced below $300,000, while that share is now just 10% of homes sold. Regionally, on a year-to-date basis, new home sales fell in all regions, down 29.2% in the Northeast, 21.3% in the Midwest, 7.3% in the South and 40.6% in the West. Related ‹ The Fed Raises Again but Takes a More Dovish ToneTags: economics, home building, housing, new home sales, new sales, single-family

New Home Sales Remain Relatively Flat in February2023-03-23T10:23:51-05:00

Single-Family Starts Remain Lackluster but Will Rebound Later This Year

2023-03-16T09:18:45-05:00

Single-family production remained at an anemic pace in February as builders continue to wrestle with elevated mortgage rates, high construction costs and tightening credit conditions that threaten to be exacerbated by recent turmoil in the banking system. Led by gains in apartment construction, overall housing starts in February increased 9.8% to a seasonally adjusted annual rate of 1.45 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The February reading of 1.45 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 1.1% to an 830,000 seasonally adjusted annual rate.  However, this remains 31.6% lower than a year ago. The multifamily sector, which includes apartment buildings and condos, increased 24% to an annualized 620,000 pace. Despite persistent supply-side challenges, rising builder confidence is signaling a turning point for home building later in 2023. A significant amount of housing demand exists on the sidelines and resale inventory is limited. Starts were up in February given a limited pullback for interest rates. We expect volatility in the months ahead as ongoing challenges related to construction material costs and availability continue to act as headwinds on the housing sector. However, interest rates are expected to stabilize and move lower in the coming months, and this should lead to a sustained rebound for single-family starts in the latter part of 2023. On a regional basis compared to the previous month, combined single-family and multifamily starts were 16.5% lower in the Northeast, 70.3% higher in the Midwest, 2.2% higher in the South and 16.8% higher in the West. Overall permits increased 13.8% to a 1.52 million unit annualized rate in February. Single-family permits increased 7.6% to a 777,000 unit rate. Multifamily permits increased 21.1% to an annualized 747,000 pace. Looking at regional permit data compared to the previous month, permits were 2.8% lower in the Northeast, 9.6% higher in the Midwest, 10.9% higher in the South and 30.0% higher in the West. The number of single-family units under construction is 734,000 homes. This is down 11.4% from May 2022, the cycle peak. The number of apartments under construction is 957,000. This is the highest total since Nov 1973. Given the declining pace for single-family starts in 2022, more homes are being completed than starting construction. In February, 58,600 single-family homes started construction. However, 77,100 completed construction. This difference is responsible for the ongoing decline in the number of single-family units under construction, as displayed in the chart above. Related ‹ Concrete Products Lead Building Materials Prices HigherTags: home building, housing, housing starts, multifamily, single-family, starts

Single-Family Starts Remain Lackluster but Will Rebound Later This Year2023-03-16T09:18:45-05:00
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