Full Speed Ahead for Housing Construction, Sales?

The Mortgage Corner

Wrightson.com

The ultra-low interest rates are making a difference as homebuilder sentiment is soaring along with new building permits, which should boost new and existing-home sales as well. For instance, more new homes on the market encourage existing-home owners to move up or downsize, depending on their age and family.

Builder confidence in the market for newly-built single-family homes increased five points to 76 in December off an upwardly revised November reading, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. This is the highest reading since June of 1999.

This is making a small dent in the severe housing shortage since the Great Recession that has resulted in soaring rents and the current homelessness in communities that haven’t been building enough new housing.

“While we are seeing near-term positive market conditions with a 50-year low for the unemployment rate and increased wage growth, we are still underbuilding due to supply-side constraints like labor and land availability,” said NAHB Chief Economist Robert Dietz. “Higher development costs are hurting affordability and dampening more robust construction growth.”

All three components of that gauge -- present sales, future sales expectations and prospective buyers traffic -- improved, said Wrightson, but the biggest gain was a seven-point rise in current sales of new homes to a 21-year high of 84.  Regionally, the gains were more mixed, with the Midwest index improving sharply, the South rising marginally, and the West and Northeast declining.

Homebuilders also boosted construction on new homes in the U.S. at an annual pace of 1.37 million in November, the Commerce Department said today. This was a 3.2 percent (±10.0 percent) increase from a revised 1.32 million in October, 13.6 percent higher than a year ago.

And new building permits hit another post-recession high, up at a seasonally-adjusted rate of 1.48 million. That was 1.4 percent (±1.4 percent) above the pace of 1.46 million set in October and 11.1 percent above last year’s rate.

We know there is still a tremendous shortage of housing that came from the reluctance of builders to build for years after the Great Recession. Some of the shortage also came from Wall Street firms buying up housing abandoned from the busted housing bubble that were then turned into rentals.

A recent report by CBSN documented the carnage from the busted housing bubble and Great Recession. More than 9 million homes were foreclosed or sold at a loss after the bubble popped, leading to fears that tracts of abandoned neighborhoods would become "ghost towns."

This led government officials such as then Fed Chair Ben Bernanke to suggest foreclosed homes could be sold in bulk to private investors as rental properties. But that wasn’t enough, as there was very little government help to keep homeowners in their homes as happened during the Great Depression when the Home Owners' Loan Corporation (HOLC lent low-interest money to families in danger of losing their homes to foreclosure. By the mid-1930s, the HOLC had refinanced nearly 20 percent of urban homes in the country, allowing homeowners to stay in their homes with very lenient terms to enable them to weather the joblessness of the Great Depression.

“In the decade since the crash,” said the CBSN report, “7 million more households have become renters, while only 1 million more have become homeowners, according to Census data. And "institutional landlords," as the Wall Street investors are called, have become a major driver of the affordable housing woes many Americans are now facing—from steep rent payments all the way to eviction.”

The homeownership rate as a percentage of households that own vs. renting hasn’t recovered, dropping from its pre-recession high of 69 percent to 64.3 percent of households today. The U.S. has become a nation of renters at a time when rental rates are soaring due to the lack of new housing, resulting also in the more than one-half million homeless.

Another casualty of the Great Recession was lack of new household formation among the millennial generation children of the baby boomers who in fact outnumber their boomer parents; but alas, were without adequate available housing.

But now residential construction is beginning to meet the demand from new household formation that is back to the longer-term 1.2 million historical average, according to the U.S. Census Bureau. Millennials are paying down their college debt enough to move out of their rental or parents’ home, and forming more families.

There is more economic good news to report this week in upcoming columns. Industrial production has picked up in autos and trucks after the GM strike, according to the Federal Reserve, though not back to pre-recession levels. And job vacancies continue to soar with 1.4 million more vacancies than new job hires.

It means jobs are plentiful, so look for housing construction and home sales to keep this economic recovery afloat!

Harlan Green © 2019

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