Single Family Housing Starts At 2007 Levels

David Goldsmith

All Powerful Moderator
Staff member

Housing affordability drops to 15-year low: Zillow​

Rising prices, mortgage payments drive homebuyer metric to lowest on record​

The aughts are back in style, with early-2000s inspiration trending in fashion, music and mortgage costs.
Housing affordability last month reached its lowest point since at least 2007, according to a recent report from Zillow. That’s as far back as the company’s affordability metric goes.

Housing prices continued their rise, though the growth acceleration finally showed signs of slowing last month. Meanwhile, mortgage rates and payments continue to balloon, while inventory is not recovering quickly enough to ease the supply-demand disparity.
Mortgage rates were flirting with the 6 percent mark last week, mere months after exceeding the 5 percent threshold. The rates are still historically low, but significantly higher than they were in the first couple of years of the pandemic.
As a result, mortgage payments are rocketing. At Thursday’s average rate of 5.78 percent, the mean monthly mortgage payment in the country would be $2,127, according to Zillow. That’s a 51 percent surge year-over-year and a 36 percent increase from the beginning of the year.

In April, monthly mortgage payments took 28 percent of homeowners’ income; 30 percent is considered a cost burden.
There are small glimmers of hope for homebuyers. According to Zillow’s index, price growth in April was 20.9 percent versus 20.7 percent in May. Last month was the first in more than a year to feature a deceleration in price growth, according to Zillow; the S&P CoreLogic Case-Shiller Index for May won’t be out until late next month.

Inventory is also showing signs of recovery. Listings increased 10.5 percent from the previous month in April. Listings are still 14.2 percent below levels from the previous year, though, and 50 percent below the mark of May 2019.
Weary home buyers can’t exactly kick back and turn to the rental market. Rents are shooting up similarly to mortgage payments — May’s annual rent appreciation was 15.9 percent and the typical rent in the country was only a few cups of coffee shy of $2,000; Redfin reported that the benchmark was exceeded last month.
Despite rising rents, mortgage payments exceed monthly rent statements in all but five states. That’s a drastic change from 2019, when rent was higher than mortgage payments in a small majority of states.
 

David Goldsmith

All Powerful Moderator
Staff member

In just a year, renting has become far cheaper than owning​

Expense was about the same until the housing market went wild: report​

The rising cost of owning a home is making renting more attractive than it has been in two decades, according to a new report.
Owning a home in April cost $839 more per month than renting, an analysis by John Burns Real Estate Consulting found. A year earlier, the difference between the two was negligible.

The differential between owning and renting is nearly $200 higher than at any point this century.
The report calculated the costs typically associated with renting and owning. For renting, it looked at single-family listings and the cost of renter’s insurance. For owning, the report assumed a purchase price of 80 percent of the median home price in an area, a 5 percent down payment and a 30-year, fixed-rate mortgage. Taxes, insurance, mortgage insurance (required if the down payment is less than 20 percent) and maintenance costs were factored in.

Across the country, it was 31 percent more expensive to own than rent in April, according to the report. The cost to own a home increased 37 percent from a year before, while the company’s single-family rent index rose only 6 percent.

The most glaring disparity is in the Raleigh-Durham metro, where it was 42 percent more expensive to own than rent in April. The other cities with the biggest disparities were Nashville and Denver.
In both Miami and Austin, it was 30 percent more expensive to own than rent. Texas was well represented on the list, featuring a 29 percent difference in Dallas and 25 percent difference in Houston. Chicago’s ownership premium was also high, at 23 percent.

The report is more evidence of the rising cost of housing. A recent report from Zillow revealed that housing affordability was at a 15-year low because of increasing prices and mortgage payments.
Mortgage rates have been flirting with the 6 percent mark, roughly twice what they were late last year. While rates are still modest historically, they have triggered sticker shock among some home shoppers.
According to Zillow, monthly mortgage payments took 28 percent of homeowners’ income in April; more than 30 percent is considered burdensome. Mortgage payments exceeded monthly rent in all but five states. Three years ago, rent was higher than mortgage payments in a small majority of states.
 

David Goldsmith

All Powerful Moderator
Staff member

Homebuilder sentiment takes historic hit​

July marked second largest drop ever: National Association of Home Builders​

As the housing market turns and sales slow, homebuilders are having a hard time hiding their concerns.
The National Association of Home Builders/Wells Fargo Housing Market Index took a historic plunge this month, dropping 12 points to 55 points. It was the second largest drop in the index’s history, trailing only the 42-point drop that came at the start of the pandemic.

The index tracks homebuilder confidence regarding current and future single-family home sales and traffic of potential buyers.
Supply constraints and volatile costs for materials and construction have plagued the industry since the onset of the pandemic. But builders are now also contending with a housing market that appears to be cooling as inventory remains low and mortgage rates rise.
“Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home,” NAHB chairman Jerry Konter said in a statement.

The index began showing significant signs of decline a few months ago as the Federal Reserve began raising interest rates, which made borrowing more expensive. As a result, people have become less likely to spend as heightened rates have made housing less affordable, trickling into sagging builder sentiment.

All three components of the index declined in July. The component for current sales fell 12 points last month to 64, while sales expectations for the next six months dropped 11 points to 50. The traffic of prospective buyers also fell 11 points, all the way down to 37.

Confidence for a three-month average is at the lowest in the Midwest, down to 52 points. The West region had the largest decline, though, down 12 points to 62; every region dropped at least 4 points.
While confidence is flailing, the index is still in positive territory. Any number above 50 represents a belief that conditions are good, meaning the overall sentiment is still positive, even though the traffic of prospective buyers has moved deeper into poor sentiment.
NAHB chief economist Robert Dietz deemed affordability the “greatest challenge” in the housing market.
“Policymakers must address supply-side issues to help builders produce more affordable housing,” Dietz stated.

 

David Goldsmith

All Powerful Moderator
Staff member
Housing Recession”: NAHB. Homebuilders Cut Prices as Traffic of Prospective New-House Buyers Plunges, Cancellations Spike

Homebuilder sentiment dives 8th month in a row, their stocks are down 19% to 36% YTD despite blistering summer rally.

“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” said National Association of Home Builders Chief Economist Robert Dietz.
The confidence of builders of single-family houses, after the second-biggest plunge in the data last month, fell again in August, the eighth month in a row of declines, having gone downhill every month this year, “as elevated interest rates, ongoing supply chain problems, and high home prices continue to exacerbate housing affordability challenges,” according to the NAHB.
With today’s index value of 49, the NAHB/Wells Fargo Housing Market Index is now back where it had been in June 2014, and below where it had been in April 2006, at the eve of the Housing Bust.
US-NAHB-homebuilder-index-2022-08-15-overall.png


The NAHB/Wells-Fargo Housing Market Index has plunged across all four regions so far this year, but unevenly, with the index hitting the lowest levels in the Midwest and the West, and with only the South still being above 50 if barely. Note that in the West (red line), after still rising early in the year, the index has plunged since March from 91 to 42. Chart shows from December through August:
US-NAHB-homebuilder-index-2022-08-15-by-region.png

Traffic of prospective buyers plunged.

“And in a troubling sign that consumers are now sitting on the sidelines due to higher housing costs, the August buyer traffic number in our builder survey was 32, the lowest level since April 2014 with the exception of the spring of 2020 when the pandemic first hit,” the NAHB report said.
Traffic is an indication of interest by buyers. And with the headwinds buyers face, including sky-high prices and 5%+ mortgage rates, they’ve lost interest:
US-NAHB-homebuilder-index-2022-08-15-traffic.png

Homebuilders cut prices to prop up sales and limit cancellations: 19% of the builders said they cut prices over the past month to “increase sales or limit cancellations,” the NAHB said. This was up from 13% of the builders who’d reported having cut prices in the prior month.
In terms of cancellations: Based on data from John Burns Real Estate Consulting, the cancellation rate homebuilders experienced in July, despite their efforts to limit them by cutting prices, spiked to 17.6%, out-spiking lockdown April 2020 (click on the image to enlarge):

In terms of price reductions: They’ve started sooner and faster in California, Texas, and the Southwest, according to John Burns, for the three months through July. The price reductions include incentives:
US-homebuilders-John-Burns-2022-07-price-reductions.png

The Census Bureau reported earlier that the median price of new single-family houses sold had plunged by a combined 12% in May and June:
us-new-house-sales-2022-07-26-median-price.png

The NAHB index for current sales has dropped every month since February, and in August dropped 7 points, after the 12-point plunge in July, to a value of 57. A value of over 50 means that still more builders rated current sales as “good” rather than “poor,” and price reductions would certainly help.
Future sales look worse: The NAHB index for sales over the next six months fell by 2 points, after having plunged by 11 points in July, to an index value of 47, the second month in a row when more builders rated their future sales as “poor” rather than “good.”
Homebuilder stocks, despite the blistering summer rally, are down between 19% and 36% so far this year, including between 0.8% and 2.1% so far today (data via YCharts):
US-stocks-homebuilders-2021-08-15.png
 

David Goldsmith

All Powerful Moderator
Staff member
Housing affordability hits 33-year low

Prices and mortgage rates primarily to blame: NAR​

To see the last time housing affordability was this low, you would have to go back to the early days of the George Bush administration — the first one.
Housing affordability hit its lowest point since 1989 in June, the Wall Street Journal reported. That’s according to an index kept by the National Association of Realtors, which considers income, mortgage rates and sale prices of existing homes.
Record home prices are one of the factors that have pushed buyers, particularly first-time buyers, out of the market. According to NAR, existing home prices have soared 46 percent in the past three years, hitting a median of $423,300 in June.
Mortgage rates, which were historically low during the early months of the pandemic, also soared amid rate hikes from the Federal Reserve first implemented rate hikes. After ending last year at 3.1 percent, the average mortgage rate was 5.6 percent in June.
These two factors, along with inflation, low inventory and other economic headwinds, are leading to a slowdown in the housing market. Redfin reported Friday that homebuyer competition fell to its lowest levels since the beginning of the pandemic, likely because fewer people are in a position to buy.

The good news for Americans is that a July affordability report would probably not match the frenzy recorded in June, as mortgage rates are tempering. While they remain highly volatile, the mortgage rate was at 5.22 percent this week.
“Thankfully, the worst in affordability could already be over for this cycle,” NAR chief economist Lawrence Yun said. “Mortgage rates have calmed down in recent weeks, and the consistent wage growth … is narrowing the gap with home-price growth.”
Still, there’s a growing body of evidence that many buyers are experiencing some of the worst affordability problems of a generation. Zillow reported in May housing affordability reached its lowest point since 2007, when the company started tracking the metric.
Consumers are fretting. Recent data from the Federal National Mortgage Association noted that consumers were more pessimistic about housing than any time since 2011, when the global financial crisis caused prices to bottom out, amid heightened concerns about home affordability and job security.
 

David Goldsmith

All Powerful Moderator
Staff member
https://wolfstreet.com/2022/08/23/s...gh-heaven-worst-since-peak-of-housing-bust-1/
Sales of New Houses Collapse (in the West by 50%!) Inventories & Supply Spike to High Heaven, Worst since Peak of Housing Bust 1

Forget “housing shortage.” It’s about crazy prices: For sales to revive at these mortgage rates, prices have got to come down a lot — and they’re starting to.

The plunge in home sales is just stunning. Sales of new single-family houses collapsed by 12.6% in July from the already beaten-down levels in June, and by nearly 30% from July last year, to a seasonally adjusted annual rate of 511,000 houses, the lowest since January 2016, and well below the lockdown lows, according to data from the Census Bureau today.
New house sales plunged in every region compared to July last year. Note the West, oh dear:
  • Northeast: -37%
  • West: -50%
  • Midwest: -23%
  • South: -21%.
us-new-house-sales-2022-08-23-sales.png

A similar plunge, but now quite as bad, occurred in sales of previously owned homes, which plunged by 20% across the US in July compared to a year ago. In California, sales of existing homes collapsed by 31% year-over-year; and in the previously hottest market, San Diego, by 41%!

Sales obviously would be a lot higher if prices were a lot lower, and more people could actually buy at these mortgage rates – today, the average 30-year fixed rate is at 5.7% again, according to Mortgage News Daily – but it takes a sustained plunge in volume to hammer the message into increasingly motivated sellers what they need to do if they want to sell: They have to go where the buyers are, and the buyers are a lot lower.
Homebuilders know this because they have been lamenting for months the plunge in traffic of prospective buyers, according to the survey of homebuilders, conducted by the National Association of Home Builders:
US-NAHB-homebuilder-index-2022-08-15-traffic.png

Suddenly no “housing shortage”: Inventories and supply spike to high heaven.​

Inventory for sale in all stages of construction jumped to 464,000 houses, up by 28%, from July last year, and the highest since March 2008:
US-new-house-sales-2022-08-23-inventory_.png

Supply of unsold new houses spiked to nearly 11 months of sales, on this surge in inventory and the collapse in sales. This was the highest since the worst months of Housing Bust 1 in late 2008 and early 2009:
US-new-house-sales-2022-08-23-supply.png

By region, unsold inventory jumped in three of the four regions, in terms of the percent increase year-over-year:
  • Midwest: 51,000; +59%
  • South: 272,000 houses; +27%
  • West: 116,000 houses; +29%
  • Northeast: 28,000 houses; unchanged.

Prices must come down at these mortgage rates, and they’re starting to.​

The median price of new single-family houses that were sold in July rose to $439,000, not quite undoing the plunge in June. This was down by $20,000 from the peak in April, whittling down the year-over-year gain to 8.2%, the smallest gain since November 2020. In a moment, we’ll look at the three-month moving average, which gives a clearer picture:
us-new-house-sales-2022-08-23-median-price.png

The three-month moving average, which irons out some of the month-to-month ups-and-downs of the median price, fell for the second month in a row, the first such declines since the lockdown months.
Note the crazy price distortions since then. And now with much higher mortgage rates, at those crazy prices, sales volume has collapsed, cancellations have spiked, traffic of prospective buyers has plunged. If builders want to bring in buyers and sell houses, they’ve got to cut prices – and by a lot:
us-new-house-sales-2022-08-23-median-price-3-month-average_.png

Worst construction-cost inflation ever is rising less crazy-fast as demand plunges.

Over the past two years, spiking demand for new houses triggered astounding spikes in prices and shortages of materials and supplies, combined with a labor shortage that have delayed projects and inflated costs for homebuilders, and they passed those surging costs on to their over-eager customers, no problem, until suddenly customers balk, which is now.
Demand by homebuyers has collapsed by 30% year-over-year to multi-year lows. And homebuilders are throttling back their demand for materials and supplies, and suddenly the crazy price spikes abate.
Construction costs of single-family houses – excluding the cost of land and other non-construction costs – ticked up only 0.4% in July from June, according to separate data the Census Bureau released today. Although that’s still big increase (around 5% annualized), it was by far the slowest increase since November 2020. The month-to-month increases had peaked at over 2% late last year, and in May and June were still at around 1.5%.
This whittled down the year-over-year spike in costs to 16.8%. Beyond the spikes this year, it was still the highest in the data going back to the 1960s. The previous high was in mid-1979 at 14%.
This chart shows the actual construction cost index and the cumulative nature of those price spikes. Note that during Housing Bust 1, construction costs actually fell – and this might be happening again as homebuilders cut back and demand sags.
Note that none of this goes into CPI inflation. The housing costs that enter into CPI are based on rents.
us-new-house-sales-2022-08-23-construction-costs-index.png

Homebuilder stocks: -25% to -40% year-to-date.

The stocks of homebuilders are down between 25% and 40% year-to-date, despite a powerful summer rally, and have by far out-dropped the S&P 500 Index (-13% year-to-date):
  • Horton: -32%
  • Lennar: -29%
  • PulteGroup: -28%
  • NVR: -29%
  • Taylor Morrison: -25%
  • Meritage: -32%
  • KB Home: -33%
  • Century: -40%
  • LGI Homes: -34%
US-stocks-homebuilders-2021-08-23.png



 

David Goldsmith

All Powerful Moderator
Staff member

Sentiment sinks deeper as market sidelines buyers and sellers​

Fannie Mae index hit 10-year low after six-month slide​

Consumer outlook keeps dropping as both buyers and sellers face the negatives in the fluctuating housing market.
The Fannie Mae Home Purchase Sentiment Index fell again in August, decreasing 0.8 percentage points last month, the government-sponsored company announced Thursday. The index was at 62 points in August, down 13.7 percentage points year-over-year.

The report marks the sixth straight month of declining sentiment. Perception of the market has been on a downhill slide among both buyers bogged down by rising mortgage rates and sellers discouraged by cooling prices.
More consumers appear to think it’s a good time to buy as the housing market cools. The net share of those saying it’s a good time to buy increased 8 percentage points month-over-month, though only 22 percent think it’s the right time to make a purchase.

If more think it’s a good time to buy, fewer think it’s a good time to sell. Seller sentiment dropped 16 percentage points from July to August. A majority (59 percent), however, still believe it’s a good time to sell.
In addition to sliding sentiment based on current indicators, more respondents aren’t expecting the market to heat up any time soon, as the net share who think home prices will increase in the next year declined by 9 percentage points.

There’s also a growing belief that the mortgage market may have topped out. The net share of those saying mortgage rates will drop in the next year increased by 11 percentage points.

The survey comes as Freddie Mac this week recorded the average 30-year fixed-rate mortgage at 5.89 percent, the highest in 14 years. Rates will likely continue to rise if the Federal Reserve hikes interest rates, which it appears poised to do by the end of the month.
With the frenzied changes unfolding in the housing market, some buyers and sellers may feel too paralyzed to pull the trigger on any deals, instead waiting to see if the market shifts further in their respective favor soon.
“Both homebuyers and home-sellers may be incentivized to remain on the sidelines — homebuyers anticipating home price declines and potential home-sellers not keen to give up their lower, fixed mortgage rate — contributing to a further cooling in home sales through the end of the year,” Fannie Mae senior vice president and chief economist Doug Duncan said in a statement.
 

David Goldsmith

All Powerful Moderator
Staff member

We’re entering the next stage of the housing market downturn—3 things to expect heading forward​

Back in June, Fed Chair Jerome Powell made it clear: The housing market would go through a “reset.”

“I’d say if you are a homebuyer, somebody or a young person looking to buy a home, you need a bit of a reset. We need to get back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again,” Powell told reporters.
Whenever a central bank moves from monetary easing to monetary tightening, there’s going to be an impact on a rate-sensitive sector like real estate. That impact, of course, is going to be even greater when monetary tightening comes after the asset class—residential real estate—spiked 43% in just over two years. Powell admitted that much in June. However, Powell was noncommittal as to whether the rate shock would push home prices lower.
Fast forward to September, and we no longer need to question if the housing “reset” will affect home prices. Back in June, the U.S. housing market was still just in the early innings of a sharp drop in housing activity. Since, we’ve seen housing activity, including home sales and home construction levels, go much lower. But as data rolls in for August, we now have clear evidence that the housing market downturn has moved beyond that first stage (i.e. a sharp drop in housing activity) and into the second stage (i.e. falling home prices).
“The longer that [mortgage] rates stay elevated, our view is that housing is going to continue to feel it and have this reset mode. And the affordability resetting mechanism right now that has to happen is on [home] prices. And so there are a lot of markets across the country where we’re forecasting that home prices are going to fall double-digits,” Rick Palacios Jr., head of research at John Burns Real Estate Consulting, tells Fortune.
Let’s take a deeper look at the three elements that’ll shift as we move into the second stage of the housing market downturn.

1. The home price correction is spreading.​


As mortgage rates spiked—going from 3.2% to 6.3% this year—industry insiders knew it'd cause a sharp contraction in housing activity. However, many housing bulls thought it wouldn't pull prices down. In March, Zillow went as far as to predict another 17.8% jump in home prices over the coming year.

It's clear that housing bulls got it wrong. Among the 148 regional housing markets tracked by John Burns Real Estate Consulting, 98 housing markets have seen home values fall from their 2022 peaks. Just 50 markets remains at their peak.
In 11 markets, the Burns Home Value Index* has already dropped by more than 5%. That includes a 8.2% drop in San Francisco home values. While it's common for median list prices to drop around this time of year, it's not common for home values or "comps" to fall because of seasonality. Simply put: The home price correction is sharper—and more widespread—than previously thought.
A growing chorus of research firms—including Moody's Analytics, John Burns Real Estate Consulting, Zonda, and Zelman & Associates—expect this home price correction to continue into 2023. Peak-to-trough, Moody's Analytics thinks U.S. home prices could soon fall 5%. In significantly "overvalued" housing markets, Moody's Analytics thinks that price drop could range from 5% to 10%. If a recession manifests, Moody's Analytics predicts those price drops would double. But even that scenario would still be below the peak-to-trough U.S. home price decline of 27% we saw between 2006 and 2012.

There are still some firms that don't think the home price correction—which is driven by an affordability squeeze created by spiked mortgage rates—will carry over into 2023. That includes Zillow. The Seattle-based home listing site acknowledges that 62% of housing markets should see falling home values in the third quarter of 2022. However, Zillow economists predict that only 28.5% of markets are headed for year-over-year declines between August 2022 and August 2023.

2. The housing downturn will soon spread beyond housing.​


On a year-over-year basis, the ongoing housing downturn has seen new home sales and existing home sales fall by 29.6% and 20.2%. Real estate firms like Redfin, Realtor.com, and Compass have already issued layoffs. Homebuilders are calling off projects, while some mortgage lenders are teetering on bankruptcy.
That said, most of the financial pain of the housing downturn has been contained within the real estate industry. That's about to change.
Researchers at Goldman Sachs recently released a paper titled “The Housing Downturn: Further to Fall.” The investment bank forecasts that U.S. housing GDP will drop by 8.9% in 2022 and another 9.2% in 2023. In the lead-up to the Great Recession—which officially started in December 2007—housing GDP fell by 7.4% in 2006 and 21.4% in 2007.
If Goldman Sachs is right, it'll mean the contractions in the U.S. housing market will soon sprawl out into the broader economy. That's not surprising. After all, the Federal Reserve has upped the Federal Funds rate in an attempt to slow the economy.

As home shoppers across the country put their home search on pause it causes homebuilders to pull back. That sees decreased demand for things like refrigerators, lumber, windows, and paint. Those economic contractions should, in theory, help to rein in runaway inflation.
"It [housing] is not the target, but it [housing] is essentially the target," Bill McBride, author of the economics blog Calculated Risk, told Fortune earlier this summer.

3. Sellers are calling timeout.​


As the Pandemic Housing Boom fizzled out this summer, we saw inventory jump across the country. In bubbly markets, like Austin and Boise, that inventory jump was greater than 300% between March and August.
But that inventory spike is already fizzling out.
Active listings on Realtor.com jumped by 106,900 homes in May. That was followed by 102,900 and 128,200 jumps in June and July. However, that slowed in August to just a 31,900 inventory jump. And through the rest of the year, Altos Research predicts inventory will actually fall.

What's going on? For starters, sellers are realizing that buyers are done paying top dollar. Rather than take less, some sellers are simply waiting out the housing downturn.
There's also the rate lock-in effect. The vast majority of outstanding mortgages have rates below 5%—with a big chunk even below 3%. If they sell now, they'd be giving up their historically low mortgage rate. That payment jump is hardly appealing for move-up buyers.
"It's going to be very very hard to persuade people to let go of those insanely low rates," Palacios tells Fortune. While many industry insiders believe tight inventory will help to prevent a housing crash, Palacios says it won't be enough to prevent the home price correction.
 

David Goldsmith

All Powerful Moderator
Staff member
www.cnbc.com/amp/2022/09/19/more-homebuilders-lower-prices-sentiment-falls-for-ninth-straight-month.html

More homebuilders lower prices as sentiment falls for ninth straight month​

  • Homebuilder sentiment in September fell 3 points to 46 in the National Association of Home Builders/Wells Fargo Housing Market Index. Anything below 50 is considered negative.
  • Nearly a quarter of builders reported lowering prices as rates surged.
  • Higher costs for land, labor and materials have made it harder for builders to lower prices, but they are now being forced to.

More builders are lowering prices for homes as their confidence in the market continues to tumble.
Homebuilder sentiment in September fell 3 points to 46 in the National Association of Home Builders/Wells Fargo Housing Market Index. Anything below 50 is considered negative.
That is the ninth straight month of declines and the lowest level since May of 2014, with the exception of a short-lived drop at the start of the coronavirus pandemic in 2020. Sentiment was at 83 in January of this year, when interest rates were about half of what they are now.

Indeed, builders blame rising rates for their falling sentiment. The average on the 30-year fixed started this year around 3% and then began rising steadily, crossing 6% for a few days in June, according to Mortgage News Daily. It then fell back a bit and almost hit 5% in August, before rising sharply again, back over 6% this month. That made an already pricey housing market even less affordable. The Federal Reserve, meanwhile, is expected to again raise its benchmark rate this week as inflation remains high.
"Buyer traffic is weak in many markets as more consumers remain on the sidelines due to high mortgage rates and home prices that are putting a new home purchase out of financial reach for many households," said NAHB Chairman Jerry Konter, a homebuilder and developer from Savannah, Georgia.
Nearly a quarter of homebuilders also reported lowering home prices, up from 19% in August, Konter added.
Of the index's three components, current sales conditions dropped 3 points to 54, sales expectations in the next six months fell 1 point to 46 and buyer traffic declined 1 point to 31.
Builders continue to report elevated construction costs, in addition to higher interest rates weighing on their market. Higher costs for land, labor and materials have made it harder for builders to lower prices, but they are now being forced to.
"In this soft market, more than half of the builders in our survey reported using incentives to bolster sales, including mortgage rate buydowns, free amenities and price reductions," said Robert Dietz, chief economist at the NAHB.
On a three-month moving average, sentiment in the Northeast fell 5 points to 51 and also dropped 5 points to 44 in the Midwest. In the South, it slipped 7 points to 56, and in the West, where home prices are highest, sentiment declined 10 points to 41.
 

David Goldsmith

All Powerful Moderator
Staff member
August Housing Starts: Record Number of Housing Units Under Construction

Housing Starts Increased to 1.575 million Annual Rate in August​

From the Census Bureau: Permits, Starts and Completions
Housing Starts:
Privately‐owned housing starts in August were at a seasonally adjusted annual rate of 1,575,000
. This is 12.2 percent above the revised July estimate of 1,404,000, but is 0.1 percent below the August 2021 rate of 1,576,000. Single‐family housing starts in August were at a rate of 935,000; this is 3.4 percent above the revised July figure of 904,000. The August rate for units in buildings with five units or more was 621,000.
Building Permits:
Privately‐owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,517,000. This is 10.0 percent below the revised July rate of 1,685,000 and is 14.4 percent below the August 2021 rate of 1,772,000. Single‐family authorizations in August were at a rate of 899,000; this is 3.5 percent below the revised July figure of 932,000. Authorizations of units in buildings with five units or more were at a rate of 571,000 in August.
emphasis added
The first graph shows single and multi-family housing starts since 2000 (including housing bubble).


Multi-family starts (blue, 2+ units) increased in August compared to July. Multi-family starts were up 33.1% year-over-year in August. Single-family starts (red) increased in August and were down 14.6% year-over-year.

Note that the recent weakness is in single family starts (red).

The second graph shows single and multi-family starts since 1968.



The second graph shows the huge collapse following the housing bubble, and then the eventual recovery. Total housing starts in August were above expectations, however, starts in June and July were revised down, combined.

The third graph shows the month-to-month comparison for total starts between 2021 (blue) and 2022 (red).



Total starts were down 0.1% in August compared to August 2021. Total starts, year-to-date, are up 2.7% compared to the same period in 2021.

Record Number of Housing Units Under Construction

The fourth graph shows housing starts under construction, Seasonally Adjusted (SA).



Red is single family units. Currently there are 812 thousand single family units under construction (SA). This is below the previous four months, and 16 thousand below the peak in April and May. Single family units under construction have peaked since single family starts are now declining. The reason there are so many homes under construction is probably due to supply constraints.

Blue is for 2+ units. Currently there are 890 thousand multi-family units under construction. This is the highest level since February 1974! For multi-family, construction delays are probably also a factor. The completion of these units should help with rent pressure.

Combined, there are 1.702 million units under construction.
This is the all-time record number of units under construction.

Comparing Starts and Completions

Below is a graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12-month rolling total for NSA starts and completions.



The blue line is for multifamily starts and the red line is for multifamily completions. Builders are still starting more multifamily units than they are completing. Multifamily completions (red) should pick up soon.

The last graph shows single family starts and completions. It usually only takes about 6 months between starting a single-family home and completion - so the lines are much closer than for multi-family. The blue line is for single family starts and the red line is for single family completions.



The recent gap between starts and completions is decreasing since builders are now starting fewer single-family units - and completions (red) are increasing.

Conclusion

Total housing starts in August were above consensus expectations, however, starts in June and July, were revised down, combined. The month-to-month increase in August starts was mostly due to multi-family starts. The recent weakness has been for single family starts.

A record number of housing units are under construction due to construction delays, but the number of single-family housing units under construction is now declining.

Homebuilders are reporting that demand is slowing, yet a large number of housing units will be delivered later this year and in early 2023 (with all these units under construction). Yesterday, the National Association of Home Builders (NAHB) reported that builder confidence declined in September, and we should expect starts to decline in coming months.
 
Top