NAHB Optimistic on Economy and Housing

The nation’s growth “is finally being driven by housing again,” proclaimed David Crowe.  Home prices have been rising, partly the result of tightening inventory of completed new homes, which in turn is stimulating demand. Employment—a major factor in home-buying decisions—continues to strengthen, albeit incrementally. And housing’s recovery is now national in scope.

 However, that recovery has not taken full flight yet. Housing still only accounts for 3% of the total economy, or about half its historical level. Single-family home starts are at 47% of the 1.3-million-unit annual level that’s considered “normal” to meet anticipated demographic and population trends. And the bugaboos of unpredictable appraisals, labor shortages, rising materials prices, and the willingness of banks to lend for mortgages have the potential for hampering the industry’s rehab.

NAHB projects single-family starts will increase this year by 26% to 672,000 units, and by 28% to 858,000 units in 2014. In other words, those starts would be 53% and 71%, respectively, of what “normal” production should be this year and next. However, there will be “huge variations” in the rate of recovery by state, predicted Robert Denk, NAHB’s assistant vice president of forecasting and analysis. A map he used during his part of the presentation projected that by the end of 2014, the top 20% of states will be at 87% of normal production, whereas the bottom 20% will still be below 60%.

Nevertheless, Denk saw housing trends moving in the right direction. All of the leading house-price indices, he said, “tell the same story: that prices are starting to rise again.” The ratio of house prices to annual household income—which during the last housing bubble went haywire—has leveled off to 3 to 2. And all measures of foreclosure activity—delinquent loans, foreclosures started, and inventory—are down, albeit with some nagging hangovers in a handful of states. 

 Builders can take comfort in the fact that pent-up demand for their products could be sizable in the coming years: there’s an estimated 2 million gap between potential household formations and actual household formations, said Maury Harris, managing director and chief economist-Americas for UBS, who during the webinar provided a macroeconomic perspective.

 The Federal Reserve’s monetary policy of quantitative easing (QE), which is meant to keep interest rates low, has been pumping $85 billion per month into the banking system. “So banks are now flush with cash,” said Harris, and continue to ease their lending standards. And while he expected the Fed to cut back on QE eventually, Harris projects only a 1.3 to 1.4 percentage point increase in lending rates over the next 18 months.

 Harris doesn’t fret too much about the so-called “shadow inventory” of bank-owned properties flooding back onto the market. “Much of what’s out there is probably in below-average condition,” said Harris, pointing to a poll of Realtors that found 31% of distressed sales in below-average condition.

 A headwind to a more robust housing recovery could be escalating materials costs. Crowe used a chart to show how prices for gypsum, softwood lumber, and concrete had nearly returned to their pre-recession peaks, and were significantly outpacing percentage improvements in housing starts and prices. Crowe expected this situation to prevail until manufacturing capacity, which was drastically reduced for many product categories during the recession, gets back up to speed.

Plansoruce, Inc., www.plansonline.com, is a full service residential design firm that also provide information for homebuilders and the homebuilding industry.

Reprinted from Builder Magazine

Broke the 1 Million Annual Starts in March 2013!

U.S. homebuilders broke the 1 million mark in March for the first time since June 2008. The gain signals continued strength for the housing recovery at the start of the spring buying season.

The overall pace of homes started rose 7 percent from February to March to a seasonally adjusted annual rate of 1.04 million, the Commerce Department said Tuesday.

Apartment construction, which tends to fluctuate sharply from month to month, led the surge: It jumped nearly 31 percent to an annual rate of 417,000, the fastest pace since January 2006.

By contrast, single-family home building, which makes up nearly two-thirds of the market, fell 4.8 percent to an annual rate of 619,000. That was down from February’s pace of 650,000, the fastest since May 2008. The government said February’s pace was a sharp 5.2 percent higher than it had previously estimated.

Applications for building permits, a gauge of future construction, declined 3.9 percent to an annual rate of 902,000. It was down from February’s rate of 939,000, which was also nearly a five-year high.

Paul Ashworth, chief U.S. economist at Capital Economics, called the data “obviously good news.” But he noted that the surge was due to a jump in volatile apartment construction and said the pace of building could drop in April.

Still, home building is expected to contribute to economic growth in 2013 for a second straight year — a reversal from 2006 through 2011, when it held back the economy.

Deutsche Bank predicts that home construction will reach an annual pace of 1.2 million by year’s end. Brett Ryan, an economist at Deutsche Bank, said that rate could add 0.5 percentage point to 2013 growth. That would be the biggest contribution from housing since 2004.

The housing recovery could spur an additional percentage point of growth by encouraging more consumer spending, Ryan said. More building and higher home sales mean Americans will likely spend more on things like furniture and landscaping. Higher home prices also create a “wealth effect” that gives homeowners the confidence to spend more.

Steady job growth, near record-low mortgage rates and rising home values have encouraged more people to buy homes. In response to higher demand and a low supply of available homes for sale, builders have stepped up construction.

March’s pace of homes started was nearly 46 percent higher than in the same month in 2012.

Housing construction fell 5.8 percent in the Northeast but gained in the rest of the country, led by a 10.9 percent rise in the South. It rose 9.6 percent in the Midwest and 2.7 percent in the West.

Plansource remains a portal of information for homebuilders and the homebuilding industry.  www.plansonline.com

Reprinted from AP

 

More Expensive New Home Less Costly to Operate in Long Term

During New Homes Month in April, the National Association of Home Builders (NAHB) is showing home buyers why they can afford a higher-priced home—if it’s new construction. Using data from the Census Bureau and Department of Housing and Urban Development’s 2011 American Housing Survey, NAHB found that buyers can purchase a more expensive newer home and achieve the same annual operating costs as an older, existing home. 

Home buyers need to look beyond the initial sales price when considering whether to buy new construction or an existing home. They will find that with the higher costs of operating an older home, they can often afford to spend more to buy a new home and still have annual operating costs that fit their budget.

NAHB’s study first looked at how utility, maintenance, property tax and insurance costs vary depending on the age of the structure. It found that homes built before 1960 have average maintenance costs of $564 a year, while a home built after 2008 averages $241. Similarly, operating costs average nearly 5 percent of the home’s value for pre-1960 structures, while they average less than 3 percent when the home was built later than 2008. 

The study then compared the first year after tax cost of owning a home by the year the house was built, taking into account the purchase price, mortgage payments, annual operating costs and income tax savings. This data showed that a buyer can afford to pay 23 percent more for a new house than for one built before 1960 and still maintain the same amount of first year annual costs.

While mortgage payments will be greater with the higher purchase price of a newly-built home, the lower operating costs mean the home buyer will have annual costs that are about the same as if they’d bought a lesser-priced, older home with a smaller mortgage payment and higher operating expenses.

Other benefits of new homes include open space floorplans, creative storage options and entertainment resources that cater to modern lifestyles, as well as the safety consideration that the structure was built and wired to modern codes and standards.

For a family working with a fixed annual budget, new-construction homes offer outstanding comfort, convenience and overall cost savings. Put that together with today’s near-record low interest rates and competitive prices, and the time has never been better to buy a new home.

Plansource, Inc., www.plansonline.com, a Tampa based residential design firm, remains a portal of information for homebuilders and the homebuilding industry.

Reprinted from Builder Magazine