Labor Shortages Push New Construction Costs Higher

Labor Shortages Push New Construction Costs Higher
National Association of Home Builders | September 17, 2018

Builders are being forced to raise home prices and are having a more difficult time meeting project deadlines because of the ongoing labor shortage in the construction industry, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index. Eighty-four percent of builders say they have had to pay higher wages to subcontractor bids, 83 percent say they have had to raise home prices, and 73 percent say they can’t complete projects on time without more manpower. The number of single-family builders reporting labor and subcontractor shortages reached a record high in July.

House 1065“The steepest upward trend has been in the share of builders saying the labor/subcontractor shortages are causing higher home prices, which increased by 22 percentage points between 2015 and 2018—to the point where it is now nearly tied with higher wages/sub bids as the most widespread effect of the shortages,” NAHB reports on its Eye on Housing blog.

The survey also shows other effects of the labor shortage, such as builders saying that, in some cases, they’ve been forced to turn down projects. The share of builders who have slowed down on accepting incoming orders has doubled between 2015 and 2018, from 16 percent to 32 percent. The share of lost or canceled sales due to labor shortages also has been on the rise, up to 26 percent in July. “Shortages are having a significant impact on production levels,” according to the report.

Source: “Housing Market Index (HMI),” National Association of Home Builders/Eye on Housing (September 2018); REALTOR® Magazine 091718

Lots Are Costing Buyers More

Lots Are Costing Buyers More
National Association of Home Builders | September 7, 2018

Lots may be getting smaller, but they’re also getting more expensive, according to analyzed data taken from the U.S. Census Bureau’s Survey of Construction. Single-family lot prices reached a new record high in 2017—half of the lots were priced at or above $47,400.

While this is a new nominal record, when adjusted for inflation, lot values have still not reached their peaks from the housing boom days, the National Association of Home Builders reports. During the housing boom, half of lots were priced at more than $43,000—this is more than $50,000 when converted to 2017 values.

However, some regions within the U.S. have seen their lot prices surpass their former peaks, even when adjusted for inflation. Rising lot values are the most pronounced in the West South Central and West North Central divisions, where lot values have climbed to new historical records.

The West South Central division—which includes Texas, Oklahoma, Arkansas, and Louisiana—tended to have values below the national median historically but started to catch up in 2015 to national numbers. Half of the lots in the region are selling for more than $56,000, which is a significant increase from the housing boom years when half of lots were priced under $30,000.

The West North Central division—which includes Iowa, Minnesota, and North and South Dakota—also saw lot prices reach a record high. Half of the lots in the region were priced above $64,000 in 2017, which also exceeded values from the housing boom days.

NAHB lot prices

“Given that the nation’s lots are getting smaller and home production is still significantly below the historically normal levels, it might seem surprising that lot values keep going up,” the NAHB notes on its blog, Eye On Housing. “However, the rising values are consistent with persistent record lot shortages. They are also consistent with significant and rising regulatory costs that ultimately increase development costs and boost lot values.”

Source: “Lot Values Climb Higher,” National Association of Home Builders’ Eye On Housing blog (Sept. 5, 2018); REALTOR® Magazine 090818

Yards for New Homes Are Smaller Than Ever

Yards for New Homes Are Smaller Than Ever
National Association of Home Builders | REALTOR® Magazine
September 4, 2018

Home buyers will have a harder time finding a big yard, as lot sizes remain near record lows, according to the U.S. Census Bureau. Among sold properties in 2017, the median lot size for a new, detached single-family home was one-fifth of an acre, or 8,560 square feet. Median lot sizes fell below 8,600 square feet in 2015 for the first time since the bureau started recording such data.

Lot sizes vary regionally, and the nation’s largest tend to be in New England. More than half of single-family spec homes in the area are built on lots exceeding 0.4 acres. New England is known for having stricter zoning regulations than other parts of the nation, which requires builders to keep lower densities for construction.

On the other hand, the Pacific region, including California, Washington, Oregon, Hawaii, and Alaska, has some of the tiniest lots in the nation—half of which are smaller than 0.15 acres.

1809_NAHB-lot-sizes

Source: “Lot Size Remains Record Low,” National Association of Home Builders’ Eye on Housing (Aug. 31, 2018); REALTOR® Magazine Online 090418

Nationally: Inventory Drought Pushes New-Home Sales to 9-Month Low

Inventory Drought Pushes New-Home Sales to 9-Month Low
National Association of Home Builders | August 24, 2018

House 1059The shortage of homes for-sale continues to depress sales. Sales of newly built, single-family homes dropped last month and are now at the lowest level since last October, the Commerce Department reported Thursday. This follows on the heels of the National Association of REALTORS®’ report earlier this week that showed existing-home sales also dipped in July, reaching their sluggish pace in more than two years.

“A lack of overall housing inventory is pushing up home prices, which is hurting affordability and causing prospective buyers to delay making a home purchase,” says Randy Noel, chairman of the National Association of Home Builders.

New-homes sales were at a 627,000 rate in July, about 1.7 percent lower than June sales. However, sales are now 7.2 percent higher than a year ago.

“Although this month marks the lowest sales pace since last October, we continue to see solid housing demand due to economic strengthening and positive demographic tailwinds,” says Danushka Nanayakkara-Skillington, NAHB’s senior economist. “Builders need to manage rising construction costs to keep their homes competitively priced for the newcomers to the housing market.”

The median price of new homes was $328,700 in July, which is 1.8 percent higher than a year ago.

Regionally, new-homes sales were up in the West (10.9 percent month-over-month) and the Midwest (up 9.9 percent month-over-month). However, those gains could not offset a 52.3 percent decline in the Northeast and a 3.3 percent drop in the South last month. “Year-to-date, sales in the Northeast are down 14.5 percent as the region deals with the impact from tax reform and persistent affordability issues,” NAHB notes in its release.

The slowdown in housing is getting the Federal Reserve’s attention, as reflected in the minutes of the central bank’s last meeting, which was released this week. Ward McCarthy, Jefferies LLC economist, noted:

“Housing activity in general has retreated from levels that were temporarily boosted by 2017 natural disasters—hurricanes and wildfires—that forced displaced households to seek alternative housing. The housing sector is also undergoing an adjustment to affordability that is less attractive than it was for most of the cycle, as well as changes in the treatment of SALT deductions in the federal tax code. That is the bad news. The good news is that there is no evidence of the type of imbalances that could cause a sharp downturn, such as heavy inventories and/or rising mortgage default and delinquency rates. We also note this is not the first temporary slowdown in housing activity this cycle.”

Source: “New-Home Sales Sink to a 9-Month Low as Housing Market Wobbles,” MarketWatch (Aug. 23, 2018) and National Association of Home Builders; REALTOR® Magazine 082418

Nationally: New-Home Sales May Be in Trouble

Nationally: New-Home Sales May Be in Trouble
National Association of Home Builders | July 26, 2018

House 1057Sales of newly built single-family homes plunged to an eight-month low last month at a time when sales should be at their highest points of the year. New single-family home sales dropped 5.3 percent month-over-month in June to a seasonally adjusted annual rate of 631,000, the Commerce Department reported Wednesday. This marks the lowest monthly annualized sales pace since October 2017.

Builders say ongoing supply constraints are being exacerbated by recent tariff disputes, which are raising the costs of building materials. In April 2017, the Trump administration imposed anti-subsidy duties on imports of Canadian softwood lumber. Builders have said that move has significantly raised the cost of building a new home.

“Uncertainty caused by tariffs and the talk of trade wars are making home buyers more cautious, and builders are taking note of this situation,” says Randy Noel, chairman of the National Association of Home Builders. “Not only are consumers and builders concerned about the current lumber tariffs but also the next round of proposed tariffs on a number of goods and services.”

The median sales price of new homes dropped to $302,100 in June, 4.2 percent lower than a year prior. “That prices were lower likely shows the dominance of homes sold in the South—where prices are lower—than a lack of demand,” Robert Frick, corporate economist for Navy Federal Credit Union in Vienna, Va., told Reuters.

While new-home sales underperformed in June, the builders’ trade group still sees “solid demand for new-home construction.” New-home sales were up in the first half of 2018 and remain 6.8 percent higher on a year-to-date basis compared to last year, says Robert Dietz, NAHB’s chief economist.

But a shortage of new construction persists. In June, the stock of new homes rose to a nine-year high of 301,000 units, but supply is still just over half of what it was at the peak of the housing boom in 2006.

Source: The National Association of Home Builders and “U.S. New Home Sales at Eight-Month Low, Housing Slowing,” Reuters (July 25, 2018); REALTOR® Magazine 072618

Nationally: New-Home Sales Jump to Highest Level of 2018

Nationally: New-Home Sales Jump to Highest Level of 2018
National Association of Home Builders | June 26, 2018

The month of May saw a record number of new-home purchases. Sales of newly built single-family homes increased 6.7 percent in May to a seasonally adjusted annual rate of 689,000 units, the Commerce Department reported Monday. It marks the highest number of new-home sales of the year and the second highest in sales since the Great Recession.

1806_regional_nhs_may

“Sales numbers continue to grow, spurred on by rising home equity, job growth, and reports of a greater number of millennials entering the single-family housing market,” says Randy Noel, chairman of the National Association of Home Builders.

The inventory of new homes for sale was 299,000 in May—a 5.2-month supply at the current sales pace. The median sales price for a new home last month was $313,000.

“We saw a shift to more moderately priced home sales this month, which is an encouraging sign for newcomers to the market,” says Michael Neal, the NAHB’s senior economist. “Since the end of the Great Recession, inventory has tracked the pace of sales growth. While we expect continued gains in single-family housing production, inventory may be partially constrained by ongoing price increases for lumber and other construction materials.”

New-home sales posted the largest increase in the South last month, rising 17.9 percent month over month and reaching a post-recession high. Sales remained unchanged in the Midwest, while sales fell 10 percent in the Northeast and 8.7 percent in the West.

Source: National Association of Home Builders; REALTOR® Magazine Online 062618

Nationally: New-Home Construction Surges to Highest Level in Decade

Nationally: New-Home Construction Surges to Highest Level in Decade
National Association of Home Builders | June 20, 2018

House 1052More new homes entered the pipeline in May than any other month since the end of the Great Recession. Total housing starts increased 5 percent in May to a seasonally adjusted annual rate pace of 1.35 million units, the Commerce Department reported Tuesday. That marks the highest housing starts since July 2007.

Broken out, single-family starts rose 3.9 percent to 939,000 units in May—the second-highest reading since the Great Recession. The multifamily sector increased 7.5 percent to 414,000 units. Single-family and multifamily production are now 9.8 percent and 13.6 percent higher, respectively, than a year ago.

“New-home construction activity soared to its highest level in over a decade, which is fantastic news as more housing inventory will be available as the year proceeds,” says Lawrence Yun, chief economist of the National Association of REALTORS®. “Moreover, construction and real estate industry jobs are being created and boosting the economy. [As a result,] GDP growth of 4 percent to 5 percent is possible in the second quarter.”

The Midwest saw the biggest jump in housing production last month, with combined single-family and multifamily housing starts rising 62.2 percent. Meanwhile, starts fell 0.9 percent in the South, by 4.1 percent in the West, and by 15 percent in the Northeast.

“The Midwest region experienced the biggest gain and hence the region will remain more affordable,” Yun notes. “The more unaffordable West region will continue to experience an intense housing shortage, as both housing permits and housing starts fell in that region. For the country as a whole, an additional 20 percent to 25 percent gain in home construction is needed to make the market more balanced.”

Housing starts will likely hit a snag in the coming weeks. Permits—a gauge of future activity—fell 4.6 percent in May to 1.3 million units. The biggest drop in permits was in the multifamily sector, which saw permits tumble 8.7 percent to 457,000. Single-family permits dropped 2.2 percent to 844,000.

“Ongoing job creation, positive demographics, and tight existing home inventory should spur more single-family production in the months ahead,” says Robert Dietz, the National Association of Home Builders’ chief economist. “However, the softening of single-family permits is consistent with our reports showing that builders are concerned over mounting construction costs, including the highly elevated prices of softwood lumber.”

Source: National Association of Home Builders; REALTOR® Mag Online, 062018