WHere Goes the Housing Market From Here?

The Mortgage Corner

Graph: Econoday

We definitely have a housing shortage. Housing construction is unable to keep up with the demand for single-family homes, in particular. Year-on-year, starts are down 1.4 percent with completions, at a 1.188 million rate, down 0.8 percent and homes not started, at 175,000, up 23.2 percent, nationally. The lack of available construction labor and high costs for lumber, which are tied in part to tariffs, are negative factors, say Realtors and home builders.

“Given the chronic lack of affordable housing and rapidly escalating home prices, it is worrisome that on a per capita basis, the country is producing new single-family housing stock at a rate that is similar to the trough of a typical recession,” Sam Khater, chief economist at Freddie Mac, told Reuters.

This is not good news for entry-level homebuyers looking to buy affordable homes, needless to say. Even though mortgage rates are still at post-recession (historic) lows, with the 30-year conforming mortgage rate stuck at 4.0 percent for a one point origination fee among the most competitive California lenders.

Some new-home projects are seeing construction delays due to those cost concerns, according to the National Association of Home Builders. The NAHB also notes the number of single-family units that are authorized but have not started is up 25 percent since July 2017.

And we have the aforementioned tariff wars raising the price of building materials—Canadian lumber in particular. “Supply-side challenges, including increases in material prices and chronic labor shortages, are affecting affordability in many markets,” says Robert Dietz, the NAHB’s chief economist. “However, consumer demand remains strong, due to a growing economy and job market and favorable demographics.”

Showing much less weakness are permits, up 1.5 percent in the month to 1.311 million. Year-on-year, permits are up 4.2 percent with strength centered where it should be and that's single-family homes where permits are up a very solid 6.4 percent. Multi-family permits are up 0.2 percent year-on-year, reflecting the rise in renters that can’t afford to buy.

What can be done to ease what is fast becoming a housing crisis? The tariff wars with Canada and the EU are definitely not in our national security interest, as housing inflation is already a problem. But there is also a construction workers shortage in this fully employed economy. Many of those workers are recently-arrived immigrants being deported by the Trump administration, rather than offered a path to citizenship; which is also harming agriculture.

The national median existing-home value is now $217,300, an increase of 8.3 percent on the year and 8.4 percent above the bubble-era peak. In 21 of the nation’s 35 largest markets, the median home value is now at an all-time high reports Zillow, the housing information specialist.

And continuing a years-long trend, says Zillow, the number of U.S. homes for sale in June fell 4.8 percent to 1.2 million, the 41^st month in a row of annual inventory declines. Inventory of homes in the top value tier dropped 5.4 percent, while the number of homes for sale in the bottom value tier fell 3.6 percent.

Even though homeownership is rising from its Great Recession trough, the share of people renting their home, rather than owning it, has also increased in all 50 of the largest cities in the country between 2006 and 2016, reports Zillow.   Renter households now represent the majority in 29 of those 50 cities — back in 2006 at the start of the housing crisis, only 16 had renter-household majorities.

So we are seeing the inevitable result of the busted housing bubble, when as many as one million excess homes were built. But even more damage was done during the succeeding recovery, when policies were not instigated to cure the loss of incomes that resulted from the loss of jobs and homes.

It will require many more public-funded programs to cure the housing shortage, including affordable housing tax breaks, remedy of the massive infrastructure deficit, and tax cuts and spending programs (such as on health care and education) that benefit the middle and working classes, rather than Wall Street and the corporations.

Harlan Green © 2018

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen