Townhouse Construction Growing

2022-05-19T08:16:53-05:00

By Robert Dietz on May 19, 2022 • According to NAHB analysis of the most recent Census data of Starts and Completions by Purpose and Design, during the first quarter of 2022 single-family attached starts totaled 36,000, which is 16% higher than the first quarter of 2021. Over the last four quarters, townhouse construction starts totaled 152,000 units, 25% higher than the prior four quarter total (122,000). Using a one-year moving average, the market share of new townhouses increased to 13.4% of all single-family starts. This represents a rebound for market share after a recent, covid-related declines for medium-density housing demand. 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, of total single-family construction. 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. This will be particularly true for prospective first-time buyers in high cost metro areas. Related ‹ Strong Gains for Single-Family Built-for-RentTags: economics, home building, housing, single-family, townhome, townhouse, townhouses

Townhouse Construction Growing2022-05-19T08:16:53-05:00

Strong Gains for Single-Family Built-for-Rent

2022-05-18T10:17:27-05:00

The single-family built-for-rent sector continues to expand as housing affordability headwinds increase. According to NAHB’s analysis of data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, there were approximately 13,000 single-family built-for-rent (SFBFR) starts during the first quarter of 2022. This is a 62.5% gain over the first quarter 2021 total. Over the last four quarters, 57,000 such homes began construction, which is a 32.6% gain compared to the 43,000 estimated SFBFR starts in the prior four quarters. The SFBFR market is a way to add inventory amid concerns 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 (5.1%) is higher than the historical average of 2.7% (1992-2012) and near a three-year high. 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 three to four percent of single-family starts. Indeed, the Census data notes an elevated share of single-family homes built as condos (non-fee simple) in the first quarter, with this share standing at 4.8%. Some but not all of these homes will be used for rental purposes. Additionally, it is 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 indicate no evidence of this data issue occurring thus far. With the onset of the Great Recession and declines in 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 been trending higher. As more households seek lower density neighborhoods and single-family residences, a growing number will do so from the perspective of renting. This will be particularly true as mortgage interest rates increase. Thus, the SFBFR market will expand in the quarters ahead. Related ‹ Single-Family Starts Decline as Rates, Headwinds IncreaseTags: economics, home building, housing, SFBFR, single-family, single-family rental

Strong Gains for Single-Family Built-for-Rent2022-05-18T10:17:27-05:00

Credit for Builders and Developers Tightens in the First Quarter

2022-05-13T07:21:08-05:00

During the first quarter of 2022, credit became tighter on loans for Acquisition, Development & Construction (AD&C) according to NAHB’s Survey on AD&C Financing.  The NAHB survey 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).  In the first quarter of 2022, both the NAHB and Fed indices were negative, indicating tightening credit conditions.   The NAHB index stood at -2.3 while the Fed index was -4.7, compared to +9.7 and +10.3, respectively, in the fourth quarter of 2021.  This is the first time that both measures show tightening credit conditions since mid-2020. 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 first quarter of 2022, 6 percent of the NAHB builders said availability of credit for land acquisition had gotten better, while 9 percent said it had gotten worse.  For land development, 3 percent said credit conditions improved, while 14 percent of the respondents indicated that it had gotten worse.  Finally, 11 percent of builders reported that the availability of credit for single-family construction had improved, compared to only 4 percent who said it had gotten worse. One way lenders reduced availability of credit in the first quarter of 2022 was by lowering  Loan-to-Value (LTV) and Loan-to-Cost (LTC) ratios.  In the NAHB survey, the average LTV on all four categories of AD&C loans declined between the fourth quarter of 2021 and the first quarter of 2021: from 70.9 to 64.4 percent on loans for land acquisition, from 72.4 to 67.7 percent on loans for land development, from 76.7 to 74.1 percent on loans for speculative single-family construction, and from 77.4 to 76.0 percent on loans for pre-sold single-family construction. Similarly, the average LTC declined from 67.6 to 66.9 percent on loans for land acquisition, from 75.9 to 74.5 percent on loans for land development, from 86.3 to 85.0 percent on loans for speculative single-family construction, and from 90.0 to 86.7 percent on loans for pre-sold single-family construction. As of the first quarter, rising interest rates  recently reported on other types of loans were not yet consistently evident in the NAHB AD&C survey.   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) decreased from 6.43 in the fourth quarter of 2021 to 6.32 percent in the first quarter of 2022 on loans for land acquisition, but increased from 7.14 to 7.85 percent on loans for land development. For pre-sold single-family construction, the average effective rate decreased from 7.94 to 7.38 percent and from 8.10 to 7.90 percent on loans for speculative single-family construction. Related ‹ Building Materials Prices Move Higher, Up 19% Year-over-YearTags: ad&c lending, ad&c loans, ADC, construciton loans, construction lending, credit conditions, economics, home building, housing, interest rates, lending, loan-to-cost, loan-to-value, LTC, LTV, single-family

Credit for Builders and Developers Tightens in the First Quarter2022-05-13T07:21:08-05:00

New Home Sales Fall on Higher Rates

2022-04-26T11:17:16-05:00

By Danushka Nanayakkara-Skillington on April 26, 2022 • New single-family home sales declined in March as mortgage rates jumped to the highest levels since the start of the pandemic. Per Freddie Mac, the 30-year fixed rate mortgage was 3.89 at the end of February and had climbed to 4.67 at the end of March. The U.S. Department of Housing and Urban Development and the U.S. Census Bureau estimated sales of newly built, single-family homes in March at a 763,000 seasonally adjusted annual pace, which is a 8.6% decline over upwardly revised February rate of 835,000 and is 12.6% below the March 2021 estimate of 873,000. Sales-adjusted inventory levels are at a balanced 6.4 months’ supply in March. The count of completed, ready-to-occupy new homes is just 35,000 homes nationwide. Median sales price is up in March at $436,700 as the cost of residential construction continues to increase in 2022. The median sales price is up 3.6% compared to February and is up 21.4% compared to March 2021. Moreover, sales are increasingly coming from homes that have not started construction, with that count up 35.8% year-over-year, not seasonally adjusted (NSA). Nationally, on a year-to-date basis, new home sales are down 6.8% for the first quarter of 2022. Regionally, on a year-to-date basis, new home sales were up 10.5% in the Northeast and 8.5% in the West but fell 9.2% in the Midwest and 13.9% in the South. Related ‹ Builders’ Profit Margins Fall as Balance Sheets GrowTags: economics, home building, housing, new home sales, sales, single-family

New Home Sales Fall on Higher Rates2022-04-26T11:17:16-05:00

Solid Gain for Custom Home Building in 2021

2022-02-21T08:16:15-06:00

By Robert Dietz on February 21, 2022 • NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates custom home building expanded by 10.8% in 2021 amid strong demand for move-up purchases given a rise in existing home equity. There were 49,000 total custom building starts during the final quarter of 2021. This marks a 11.4% gain from the fourth quarter of 2020. Over the last four quarters, custom housing starts totaled 195,000 units, a 10.8% gain from 2020 (176,000). The acceleration of custom home building has increased its market share after a period of decline. As measured on a one-year moving average, the market share of custom home building, in terms of total single-family starts, increased to 17.3%. This is down from a recent 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. Custom homes are homes built on an owner’s lot with the builder providing a service of construction rather than a sale of real estate. The majority of custom construction is undertaken by private, community home builders. Related ‹ Existing Home Sales Rebound Amid Record-Low Inventory and Higher PricesTags: custom, custom home building, custom homes, economics, home building, housing, single-family

Solid Gain for Custom Home Building in 20212022-02-21T08:16:15-06:00

Credit for Builders & Developers Eases at the End of 2021

2022-02-17T12:19:27-06:00

In the fourth quarter of 2021, effective interest rates decreased on all four categories of loans tracked in NAHB’s Survey on Acquisition, Development & Construction (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) decreased from 6.50 in the third quarter of 2021 to 6.43 percent in the fourth quarter of 2021 on loans for land acquisition, from 8.33 to 7.14 percent on loans for land development, from 8.55 to 7.94 percent on loans for pre-sold single-family construction, and from 8.37 to 8.10 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 loans specifically for land development, both the contract rate and the points declined in the fourth quarter—from 5.24 to 4.72, and from 0.89 to 0.67 percent, respectively.  On the other three categories of AD&C loans, the contract interest rate increased, but was more than offset by a reduction in points.   On land acquisition loans, the contract rate increased from 4.74 to 4.89 percent while the initial points decreased from 0.88 to 0.68.  On speculative single-fmily construction loans, the contract rate increased from 4.85 to 4.86 percent while the points decreased from 0.87 to 0.68. And on loans for pre-sold single-family construction, the contract rate increased from 4.49 to 4.52 percent while the points decreased from 0.77 to 0.68. 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 fourth quarter of 2021, both the NAHB and Fed indices were positive, indicating net improved availability of credit, with the NAHB index indicating somewhat more easing.  The NAHB index stood at 21.3 while the Fed index was 10.3.  These results from the third quarter were 11.0 for NAHB index and the Fed index was 9.4.  More information about the Fed’s SLOOS is available in a February 11 Eye on Housing post. 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 fourth quarter of 2021, 29 percent of the NAHB builders said availability of credit for land acquisition had gotten better, compared to only 4 percent who said it had gotten worse.  For land development, 25 percent said credit conditions improved, while none of the respondents indicated that it had gotten worse.  Finally, 25 percent of builders reported that the availability of credit for single-family construction had improved, compared to 11 percent who said it had gotten worse. The relatively favorable cost and availability of AD&C loans helps explain the strength of builder confidence at the end of the year (before it began to edge downward at the beginning of 2022). Related ‹ Single-Family Built-for-Rent Growth in 2021Tags: ad&c lending, ad&c loans, ADC, construciton loans, construction lending, credit conditions, economics, home building, housing, interest rates, lending, single-family

Credit for Builders & Developers Eases at the End of 20212022-02-17T12:19:27-06:00

Single-Family Built-for-Rent Growth in 2021

2022-02-17T10:15:29-06:00

The number of single-family built-for-rent (SFBFR) construction starts increased almost 16% in 2021, after a record-breaking third quarter for production. The SFBFR market is a way to add inventory amid concerns 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. According to NAHB’s analysis of data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, there were approximately 15,000 single-family built-for-rent starts during the fourth quarter of 2021. Over the course of 2021, 51,000 such homes began construction, which is a 15.9% gain compared to the 44,000 estimated SFBFR starts in 2020. 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 (4.5%) remains higher than the historical average of 2.7% (1992-2012) but is down from the 5.8% reading registered at the start of 2013. 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 three to four percent of single-family starts. Indeed, the Census data notes an elevated share of single-family homes built as condos (non-fee simple) in the fourth quarter, with this share standing at 4.5%. Many but not all of these homes will be used for rental purposes. Additionally, it is possible some single-family built-for-rent units are being counted in multifamily starts, as a form of “horizontal multifamily,” given these units are built on single plat of land. This possibility requires additional investigation but runs counter to the structural definitions used in the Census data. With the onset of the Great Recession and declines in 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 been trending higher. As more households seek lower density neighborhoods and single-family residences, a growing number will do so from the perspective of renting. This will be particularly true as mortgage interest rates increase. Thus, the SFBFR market will expand in the quarters ahead. Related ‹ Slight Decline for January Single-Family StartsTags: home building, housing, SFBFR, single family built for rent, single-family

Single-Family Built-for-Rent Growth in 20212022-02-17T10:15:29-06:00

Building Materials Remain Top Challenge for Builders

2022-02-07T09:15:06-06:00

Much like last year, the price and availability of building materials topped the list of problems builders face.  According to special questions on the December 2021 survey for the NAHB/Wells Fargo Housing Market Index, building material prices were a significant issue for 96% of builders in 2021, and 91% of the builders  expect it to continue being a problem in 2022. The second most widespread problem in 2021 was availability/time it takes to obtain building materials cited by 91% of builders. In 2022, the share of builders expecting availability/time it takes to obtain building materials is expected to be 90%. The high incidence of builders reporting building material problems is not surprising given recent increases in material prices. In 2011, building materials prices was reported as a significant problem by 33% of builders, followed by 46% in 2012, 68% in 2013, 58% in 2014, 42% in 2015, 48% in 2016 and 77% in 2017, 87% in 2018, and 66% in 2019 before peaking at 96% in both 2020 and 2021. Meanwhile the cost and availability of labor was reported as a significant problem by only 13% of builders in 2011. The share increased to 30% in 2012, 53% in 2013, 61% in 2014, 71% in 2015, 78% in 2016, 82% in both 2017 and 2018, 87% in 2019 and 65% in 2020. While 82% said it was problem in 2021, 85% expect it to continue being a problem in 2022.  Again, this result is not surprising given the large number of unfilled job openings in the construction industry. Compared to 2021 builders expect some of the problems to become worse in 2022. Rising inflation in US economy was significant problem for builders in 2021 and 2022. While the share was 63% in 2021, it is expected to increase significantly to 90% in 2022. Federal environmental regulations and policies was a significant problem for 37% of builders in 2021, compared to 52% who expected it to be an issue in 2022. Gridlock/uncertainty in Washington making buyers cautious was a significant problem for 32% of builders in 2021, but 50% expect it to be a problem in 2022. Concern about employment/economic situation was a problem for 24% of builders in 2021, but 46% expect it to be a problem in 2022. While Taxes on home builders was a problem for 23% of builders in 2021, it will be significant problem in 2022 for 43% of builders. High interest rates was a problem for only 2% of builders in 2021, but 31% of builders expect it to be a significant problem  in 2022. Attempts to limit mortgage interest deduction/other was a problem for 12% of builders in 2021, but 30% expect it to be a problem in 2022. For additional details, including a complete history for each reported and expected problem listed in the survey, please consult the full survey report. Related ‹ Strong Job Gains in JanuaryTags: Building Materials, economics, eye on the economy, home building, house prices, single-family

Building Materials Remain Top Challenge for Builders2022-02-07T09:15:06-06:00

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