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The NAHB Index’s newest numbers have some people on edge

(REAL ESTATE NEWS) The NAHB housing market index is reflecting a drop in home builder confidence which is not to be confused with another crucial home builder trait.

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The NAHB index

On Monday, The National Association of Home Builders released new data showing a drop in confidence among American home builders this month.

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The NAHB housing market index also fell by three points in April, to 68. In March, the NAHB index made it up to 71, which is the strongest reading in over a decade.

Incorrect

The NAHB index is based upon a survey of NAHB members, conducted monthly, which targets the single-family housing market, in particular. The survey asks for a rating of market conditions for new home sales, both in the present and in the next six months. It also asks for information about the behavior and numbers of potential new home buyers.

According to a poll conducted by Thomson Reuters, economists were incorrectly optimistic.

They expected home builder confidence to reach 70 this month, after the boost in March attributed to President Trump’s perceived anti-regulatory stance in the housing industry.

Apples to oranges

Chief economist of the National Association of Home Builders, Robert Dietz, accompanied the new report with a reminder to distinguish demand from confidence: “The fact that the HMI measure of current sales conditions has been over 70 for five consecutive months shows that there is continued demand for new construction,” he said, but “builders are facing several challenges.” According to Dietz, these include “hefty regulatory costs and ongoing increases in building material prices.”

NAHB Chairman Granger MacDonald had some reassuring words of his own to add.

“Even with this month’s modest drop, builder confidence is on very firm ground,” he said. “Builders are reporting strong interest among potential home buyers.” Basically, no one is worried about demand at this point. The problem lies in all the obstacles separating demand from supply.

No need to panic

Each of the index’s three components saw decreases in April: the current sales conditions component fell to 74, down 3 points; the sales expectations for the next six months also dropped three points, to 75; and the buyer traffic component fell a single point, to 52. However, the NAHB maintains that all three components remain at healthy levels.

The regional breakdown reveals a disparity between the West and the rest of the country.

Builder sentiment remained unchanged from March in the West, and went down a single point in the South. In the Northeast, however, builder sentiment went down an alarming eight points, and the Midwest saw a five-point decrease.

I dip, you dip, we dip

On the 18th, the Commerce Department is slated to release a report, unrelated to the NAHB, detailing new residential construction from March. New housing starts are expected to have declined to an annual rate of 1.262 million, after a jump to 1.288 million the previous month.

The industry may be starting to worry that President Trump will not keep his deregulation promises. If that’s the case, further dips may be in store as confidence drops across the board.

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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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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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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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Real Estate Big Data

Office occupancy is on the rise, but its knocking down morale

(BIG DATA) Despite work from home policies still in place and the flexibility some employers are offering, office occupancy is increasing steadily.

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Empty startup office with open floor plan, abandoned while working from home.

As coronavirus numbers dwindle and some officials begin calling for a fourth COVID-19 shot, more and more people previously working at home after being kicked out of shuttered office buildings are returning to the bullpen.

The National Association of Realtors reports that more than 80% of metro areas in the United States have seen an increase in in-person working.

Boston saw the largest office occupancy growth over the past year. Chicago, New York and Washington, D.C. have the most open space.

NAR researcher Scholastica Cororaton says office occupancy is also increasing in areas with a big tech presence. San Jose, San Diego, San Francisco and Seattle lead those areas.

“The rising occupancy in these tech metro areas indicates that tech companies are contributing to the demand for office space,” Cororaton wrote. “Even as nationally, 45% of mathematical and computer workers work from home for at least some part of the time.”

The way companies are returning to work vary and are sparking anger. For instance, Google employees must now be in the office three days a week. On the other hand, Apple begins its return to office plan next week. It starts with employees coming back one day a week which will eventually grow to two days and then three days a week. Apple employees have revolted against the idea and are have threatened to quit.

Many in leadership are pleased with the return to the office to boost productivity and collaboration. However, employees are finding they’re showing up in person to just log in to Zoom again, which has stirred up even more frustration.

On top of the redundancy of work that could be done at home, a study shows only 3% of white-collar employees want to work in the office all week. 86% want to stay home for at least a few days.

Plus, the return to the office drives up costs, with gas prices seeing soaring and inflation at a 40-year-high.

Since the second half of 2021, 30 million square feet of office space has been taken up, however, about 100 million square feet remain.

NAR reports filling that space up again could take through the end of 2024.

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