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Housing starts surge, but only in the multi-family sector #MixedNews

(REAL ESTATE) Housing starts just skyrocketed, led by multi-family, while single-family actually fell, doing *nothing* to help the housing supply crisis.

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Builder reading master plan for new construction homes

Housing starts are on the rise, everyone celebrate! We’ve been saying for years that the market will continue to choke out would-be homebuyers if permits and starts don’t improve, and we’re finally seeing a glimmer of hope, but unfortunately it’s pretty exclusively in the multi-family sector.

According to the U.S. Commerce Department, housing starts jumped 3.9% in August, beating economists’ expectations, with construction material pricing easing and allowing for more new builds. But again, the surge was led by multi-family (up a whopping 20.6% for the month), while single family housing starts actually fell 2.8%, and permits for that sector stagnated.

“There is certainly a housing shortage, as reflected in the low inventory of homes for sale and in low rental vacancy rates,” observed National Association of Realtors’ Chief Economist, Dr. Lawrence Yun. “However, a shift toward rental buildings means less access to homeownership over the long run and the accompanying opportunity for wealth gains.”

This summer, NAR called for lawmakers from local to federal to take “once-in-a-generation action” to address the housing supply crisis.

Now, Dr. Yun noted that “given the housing shortage and the lack of big increases in the construction of single-family homes, home prices will continue to move higher than most people’s income gains,” despite price gains skyrocketing 20% gains in the first half of this year.

“That’s good news for property owners,” said Dr. Yun, “but bad news for those wanting to become homeowners.”

In coming months, single-family housing starts are expected to slow, not just for seasonality reasons, but as a result of thousands of people trading in their city life for a suburban life as a reaction to a global pandemic.

Home builders’ permits are up 50% nationally compared to this time last year when supply chains were obliterated by COVID, and China’s real estate problems are not expected to have a strong ripple effect in housing stateside, although a temporary stock market retraction has been felt.

Homebuilder sentiment just rose for the first time in three months, according to the National Association of Home Builders (NAHB) which pointed to a rise in buyer traffic and (finally) falling lumber prices, which they said has added an average of $30K in cost to a new home in America.

“The September data show stability as some building material cost challenges ease, particularly for softwood lumber. However, delivery times remain extended and the chronic construction labor shortage is expected to persist as the overall labor market recovers,” said NAHB Chairman, Dr. Chuck Fowke.

Real Estate Big Data

NAR Chief Economist predicts housing market uncertainty

(BIG DATA) Warning bells on the housing market have been ringing for over a year. While this prediction isn’t a surprise, it’s disappointing news.

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Multitude of colorful homes representing housing market.

The housing market is booming. Many experts are concerned about another bust like we experienced in 2008, but the conditions are much different today. Homeowners aren’t extended like they were when the market crashed in 2008. National Association of Realtors® Chief Economist Lawrence Yun suggests that the housing market is still uncertain, even though he says, “housing kept the economy afloat” during the pandemic.

What is impacting the housing market? 

Yun cites record-low inventory and inflation as “curveballs” to the housing market. Many economists, including Yun, have been concerned about low inventory for many years, especially in certain markets. Even though builders are working hard to construct new residences, supply chain and labor issues are not accelerating the process.

Yun is more concerned about inflation impacting the housing market. He says,

“wages have risen by 6% from one year ago…but inflation is 8.5%.”

Rising mortgage rates have made mortgages cost $300 to $400 a month more, according to Yun. Many working families can’t afford that. Yun predicts inflation is going to be high for several months. The market will slow as the Federal Reserve raises rates.

Yun also cites the Russia-Ukraine war as another contribution to the uncertainty of the market. The war is also driving inflation, not just overseas, but in the United States. With gas prices climbing higher each week, this is impacting the housing market.

Is real estate a good investment in this market?

Last year, when Yun opened the Residential Economic Issues & Trends Forum at NAR’s annual REALTOR® Conference & Expo in San Diego, he expected the “housing sector’s success to continue,” but he did suggest that 2022’s performance wouldn’t exceed 2021s.

“Rising rents will continue to place upward pressures on inflation,” he said. “Nevertheless, real estate is a great hedge against inflation.”

There’s a lot we don’t know about the future. It’s disappointing to think that the housing market may be uncertain, but real estate is still a good investment.

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Real Estate Big Data

Housing starts stagnate, market conditions are rapidly shifting

Housing starts for April stagnated, marking the second consecutive months of declines, and more renters being left out of this shifting market.

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construction home growth housing starts

Housing starts stagnated in April, down 0.2% from the prior month, according to the U.S. Commerce Department.

The sentiment appears to be that although this marks the second straight month of dips, most are seeing today’s news as a positive, especially as construction of new homes was expected to fall 2.4% in April.

Further, housing starts are up 14.6% from April of last year, driven primarily by multifamily construction.

But it’s worth not getting overly excited, given that permits dipped 3.2% in April which is a forward-looking indicator, so expect starts to continue cooling in a time where we quite need the inventory.

Demand for housing inventory remains high, but the National Association of Home Builders reports today that confidence in the single-family housing market fell dramatically in May, marking the lowest level in two years.

Dr. Lawrence Yun, Chief Economist at the National Association of Realtors said in a statement, “The worst of the housing shortage is ending, but market equilibrium between supply and demand is still some ways off.”

He notes that as mortgage rates increase, builders “are chasing rising rents, with fewer homebuyers and more renters being forced to renew their leases,” noting that even prior to the interest rate increases, rents were rapidly rising and vacancy rates rapidly declining.

Pointing to another market shift, Dr. Yun notes that “Some degree of a return to the office is also fueling back-to-city living where high rises are concentrated.”

That’s a problem.

“Even as home sales look to trend back to pre-pandemic levels after the big surge of the past two years,” concludes Dr. Yun, “inventory will not return to pre-pandemic conditions. That means home prices will get pushed even higher in the upcoming months, albeit modestly, given the supply-demand imbalance.”

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Real Estate Big Data

Home prices jump double digits in majority of American metros [report]

(REAL ESTATE) Housing affordability was already a widespread challenge before current economic pressures were applied, but now home prices are skyrocketing.

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homeownership home prices

As home sales slide and mortgage rates rise, home prices in 70% of 185 measured metros saw a double digit annual increase in Q1, according to the newest data from the National Association of Realtors (NAR), up from 66% in the previous quarter.

The Southern region accounted for 45% of home sales in Q1, and experienced a 20.1% increase in annual home prices (compared to 14.3% just the quarter prior). Home prices in the Midwest jumped 8.5% annually in Q1, while The Northeast rose 6.7%, and the West increased 5.9%.

The median sales price of a single family existing home has now hit an astonishing $368,200.

“Prices throughout the country have surged for the better part of two years, including in the first quarter of 2022,” said NAR Chief Economist, Dr. Lawrence Yun. “Given the extremely low inventory, we’re unlikely to see price declines, but appreciation should slow in the coming months.”

Yun expects supply levels to improve, and for “more pullback in housing demand as mortgage rates take a heavier toll on affordability,” given that “there are no indications that rates will ease anytime soon.”

At first blush, price appreciation sounds lovely to anyone that owns a home, given that it is the largest investment most Americans will ever make.

But regarding today’s report, several homeowners told us that they now feel trapped, and that if they sold their current home, even if they purchased a new house at that same price, they would likely have to downgrade.

Affordability is an ongoing problem weighing down the housing sector. NAR reports that the monthly mortgage payment on a typical existing single-family home with a 20% down payment rose to $1,383 (up $319, or 30%, from one year ago). Families now typically spend 18.7% of their income on mortgage payments (but only spent 14.2% one year ago).

“Declining affordability is always the most problematic to first-time buyers, who have no home to leverage, and it remains challenging for moderate-income potential buyers, as well,” Dr. Yun observed.

Map of how home prices are behaving nationally

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