Discussing cuts to HUD’s budget, AD&C loan standards and volume, tight inventory, forever homes, construction values dip and more…
The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), rose 0.4 percent in May, following a downward revision of 0.1 percent for April. Compared to a year earlier, the CAB is up 5.0 percent year-over-year, a modest slowing that still suggests continued growth through year-end 2017. All data is measured on a three-month moving average.
Ruh roh! While it isn’t time to panic, we do need to keep an eye on the Chemical Activity Barometer.
The White House proposes cuts to HUD that top 13 percent. Among the victims: the National Housing Trust Fund, a resource devoted exclusively to America’s most vulnerable households.
The Housing Trust Fund is a godsend for vulnerable families. But it is unlikely to survive its first encounter with a Republican administration after the one that signed it into law: In the federal budget for 2018 released today, the Trump administration zeroes out funds for the Housing Trust Fund, eliminating one of the country’s few mechanisms for establishing and keeping deeply affordable housing.
That doesn’t sound good…
HUD Secretary Ben Carson said:
This Budget reflects this Administration’s commitment to fiscal responsibility while continuing HUD’s core support of our most vulnerable households. We will work very closely with Congress to support the critical work of our agency as we vigorously pursue new approaches to help work-eligible households achieve self-sufficiency.
So which is it? Are the most vulnerable getting screwed or is Carson steering HUD in the right direction?
Over the first quarter of 2017, builders and developers reported easing credit conditions for acquisition, development, and single-family construction (AD&C) loans and the pace of easing quickened. Historically, results from the NAHB’s AD&C Financing Survey have tracked quarterly changes in bank-held residential construction loans.
The pace of easing over the quarter took place across all forms of AD&C loans with the largest changes occurring on loans for land development and single-family construction. Similarly, credit standards on each of land acquisition, land development, and single-family construction loans eased over the past year as well, with standards on land development loans recording the largest change in net easing.
Good news and let’s hope this leads to more affordable starter homes being built. However, we cant get our hopes up too much as they also said:
The volume of residential construction loans increased by 1.6% during the first quarter of 2017, marking 16 consecutive quarters of growth. However, the growth rate for lending during the fourth quarter of 2016 and the start of 2017 were the slowest since early 2013.
Tight availability of acquisition, development and construction (AD&C) loans has been a limiting factor for home building growth, but easing credit conditions and a growing loan base have helped expand residential construction activity in a thin inventory environment.
Hey, growth may be slow but at least we are still seeing growth…
Demand for existing-homes remains strong, as positive economic conditions and the demographic tail wind of Millennial demand continues to grow. Meanwhile, sellers are increasingly unwilling to list their homes for sale. The market faces a ‘prisoner’s dilemma.’ If everyone sells, there will be plenty of supply, but the risk of selling when others don’t, the inability to find a home to purchase at the right price, is preventing homeowners from putting their homes on the market. The ‘prisoner’s dilemma’ in housing is restricting supply, causing increased house price appreciation and falling affordability.
Again, we hear how tight inventory is hurting the housing market. Yesterday, I discussed how new home sales were weak compared to expectations but up YoY. I will discuss the latest Existing Home Sales Report from NAR in tomorrow’s post to really see where things are headed for the US housing market.
The value of new construction starts in April dropped 13% from the previous month to a seasonally adjusted annual rate of $647.8 billion, according to Dodge Data & Analytics. The decline followed three straight months of gains, which saw total construction activity rising 20% from the lackluster amount reported back in December. Much of April’s slide for total construction reflected a steep 39% plunge by its nonbuilding construction sector.
Meanwhile, residential building slipped a more moderate 5% in April, and nonresidential building receded only a slight 1% as it basically held steady with its pace in February and March. During the first four months of 2017 total construction starts on an unadjusted basis were $213.9 billion, down 4% from last year’s January-April period. If the volatile manufacturing plant and electric utility/gas plant categories are excluded, total construction starts during the first four months of 2017 would be up 4% compared to last year.
Wow! Not good at all but this is only 1 month and we did just see 3 consecutive months of increases.
The American concept of a “forever home,” or a house that will last through all phases of a person’s life, is outdated, according to Taylor Morrison’s 2017 Consumer Survey. 58% of prospective millennial homebuyers expect to change where—and the way—they live over time as their lifestyle evolves. This sentiment is shared by 56 percent of all homebuyers.
Additionally, the data shows that a third of these millennial buyers intend to live in the next home they buy for less than 10 years, with 80 percent equally or more interested in a newly constructed home over a resale home. Of all of those surveyed, 26 percent stated that the principal advantage they see in buying a newly constructed home over a pre-owned one is floor plans that fit their current lifestyle top the list.
Interesting stuff. Only time will tell if the concept of forever homes decreases in the coming years. Something to consider is how life has a funny way of mucking up your plans…
The sweet spot of U.S. housing demand — if I’m reading the most recent National Association of Realtors and Portland State University Community and Transportation Preferences Survey correctly — is for neighborhoods of densely packed single-family houses with sidewalks and short walks to restaurants, shops and public transportation but with easy highway access as well. Such neighborhoods do exist in U.S. cities and inner suburbs, but they tend to be expensive and awfully hard to build new housing in. So we get center-city high rises and exurban sprawl instead. Supply constraints are dictating the shape of America’s growth at least as much as demand is.
Budget and the lack of inventory does shift home buying to the burbs. Depending on the location, it could be a decent trade off between what buyers want and what they can actually afford.
The Stunted Recovery of New Home Construction
Even as home prices reach new highs and markets are starved for inventory, the rise in the number of new homes built in the U.S. is sluggish. Homebuilders blame a shortage of labor and, crucially, a limited supply of lots. Home price appreciation in U.S. cities has been substantially greater towards the metropolitan interior, drawing homebuilders to areas in which vacant lots are scarcer, and heightening the perception that lots are in short supply.
Notice they said “the perception that lots are in short supply”. It is reality in some areas not perception. This is why we see so many new subdivisions spring up in more rural areas instead of in town in Anderson County.
That’s it for today. Be sure to check back tomorrow as I already have some juicy stuff to share!