Construction costs are rising as well. Construction in my area, including residential, are rising faster than the general inflation rate. Since it takes longer to build a house, the interest costs of financed spec houses are being doubly hit by higher interest rates and longer build time.
High construction costs coupled with higher mortgage rates will create much higher monthly payments. f
OF course wages are up, but in my area mostly with the very lower wage earners.
Construction costs are rising as well. Construction in my area, including residential, are rising faster than the general inflation rate. Since it takes longer to build a house, the interest costs of financed spec houses are being doubly hit by higher interest rates and longer build time.
High construction costs coupled with higher mortgage rates will create much higher monthly payments. f OF course wages are up, but in my area mostly with the very lower wage earners.
Note - the oft-cited FRED housing supply chart that currently shows a 6 month supply https://fred.stlouisfed.org/series/MSACSR is for new construction, if you read the fine print below the graph that says New Residential Sales. FRED has only been tracking existing home sales since Feb 2021 https://fred.stlouisfed.org/series/HOSSUPUSM673N and they also show a supply of less than 2 months at this time. Since the majority of houses sold in the US are existing houses, the existing house sales data gives a better overall view of the housing market, IMO.
Even if demand drops by 50% due to the factors you’ve cited, that would only increase the months housing supply to 3.5 or so - still a market without enough supply for the available demand. If the demand is cut to 25% of current demand, then we will get to a slight oversupply of 7 months. At that point, we will see the price increases moderate to being flat, to possibly slightly down.
Of course, since it’s expensive to pick up houses and move them even short distances, all real estate is local, and some areas may see crashes while others may still be booming. But I would not foresee a crash in the national housing market unless demand is cut by 90% or more, and/or supply increases by 500% or more, so that the months of existing house supply increases to at least 12 months.
The price of lumber has come down but with the Tariffs on Canadian lumber (The United States and Canada have been fighting over lumber for years) it will be hard to bring it to far. But Biden has been talking about removing some tariffs, but if Canada will be included is only guessing right now. I am looking at building a RV garage but they are quoting me 160 a sq ft right now and that seems way to high.
From the link that you provided above, the average home sold in February for $357,300. Assuming 5.25% 30 year mortgage, 20% down, $2,400 in property taxes and $1,000 for home owners insurance, both per year. The monthly payment would be $1,862.
The above link also gave the Feb 2022 YoY price index up 18.2%, so that $357,300 house a year ago would have been $302,284. Not sure what a 30 year mortgage would have been a year ago, but it was not that long ago that they were about 3.25%. Assuming the same 20% down payment and same property taxes and insurance, the payment a year ago would have been $1,336.
IF(!), over the next year the average home price increased half as much 9.1% it would sell for $389,814. What if in a year the 30 year mortgage rate was 6.25%, then that monthly payment would go up to $2,203.
That will take some buyers out of the market.
Where I live there was a housing bear market back in 2003 caused solely by overbuilding. It happened quick! Housing starts are up significantly, not quite up to 2005/2006 levels, but it is getting close.
Since the demand is way too high for the supply, I would say that taking buyers out of the market will probably make for a healthier housing market, and will help stop the crazy price increases. As I said - 6 months is a healthy supply, and we are currently at 1.7 months.
I would also point out that part of the reason that the supply of houses for sale is so low is that people who have a mortgage rate that’s lower than 4% probably aren’t eager to change homes with current rates of 5%+ Also, all that appreciation looks great - until they see what they would have to spend for a different house. So the move-up buyers aren’t moving up as much as they might have with lower prices and lower rates, cutting the inventory.
Housing starts are up significantly, not quite up to 2005/2006 levels, but it is getting close.
Yeah, I see everyone predicting a crash in housing cite that a lot, too. However, when you look at it in context, it’s not really that high currently. Here is the seasonally adjusted housing start rate from 1959 https://fred.stlouisfed.org/series/HOUST and the non-adjusted chart https://fred.stlouisfed.org/series/HOUSTNSA if you want to see the raw data. I would point out a couple of things:
The 2005/2006 peak, at 2.2MM annual starts wasn’t actually the highest peak - the highest one actually occurred in 1972/73 with over 2.4MM, and then in 1978, there was a 2.1MM peak, with a few points in the 80s at/over 2MM. Our current rate of 1.7MM is nowhere near those rates yet.
When you factor in the population over that time (because a higher population needs more houses), the current numbers become even less of a peak:
72/73 - 213MM population, 2.4MM housing starts => 1,126 annual housing starts per 100k population
78 - 225MM population, 2.1MM housing starts => 933 annual housing starts per 100k population
05/06 - 298MM population, 2.2MM housing starts => 738 annual housing starts per 100k population
2022 - 334MM population, 1.7MM housing starts => 509 annual housing starts per 100k population
What I also see cited a lot is the number of houses under construction https://fred.stlouisfed.org/series/UNDCONTSA is getting to a peak. However, when it takes you 1.5 - 2 times as long to build a house because of supply chain issues, you’re going to have 1.5 - 2 times the number of houses under construction, to get to the same number of completed houses each month.
Home affordability is falling.
Yes, and it will fall until the demand and supply curves are back in balance. That doesn’t diminish the fact that home ownership rates https://fred.stlouisfed.org/series/RSAHORUSQ156S are still better than they were in the 80s and most of the 90s, and certainly better than the trough caused by tightened lending practices and the financial crisis that occurred in 2015/16.
I really appreciate you normalizing the data. One thing to take care of in reporting. If the cycle time extends and we desire to see the number of starts to understand velocity, your assumption to 2x the number of starts to get to the same availability numbers works - temporarily.
Any cycle time adjustments are transient effects which should be absorbed in roughly the same amount of time as the adjustment. In this case, if housing cycle times were 6-8 months, it would take 6-8 months for this transient effect to wash through the system.
I believe we are well past the 6-8 months, indicating that these effects are largely behind us for that initial lag.
At this time, I would not be adjusting the number of starts based on historical numbers due to that transient condition.
Future increases/decreases will have similar impacts - when they occur.
Any cycle time adjustments are transient effects which should be absorbed in roughly the same amount of time as the adjustment. In this case, if housing cycle times were 6-8 months, it would take 6-8 months for this transient effect to wash through the system.
Well, when you look specifically at the number of houses that are for sale and are also under construction, the curve is seeming to flatten out, and even trend back down a bit, after a pretty steep uninterrupted climb for about a year.
The peak in 05/06 actually occurred Jun - Aug of 2006, when there were 570k, 568k and 570k, respectively, new housing starts for sale. However, since this data is not seasonally adjusted, and there are definitely changes to construction stage by season, let’s compare Feb, 2006 to Feb, 2022 to get an apples to apples comparison:
2006 2022
Not started 87k 16.3% 105k 26.2%
Under construction 321k 60.2% 259k 64.6%
Completed 125k 23.5% 37k 9.2%
Total 533k 401k
So currently, there are a lot more “not started” and a lot fewer “completed” than there were in 2006, showing that there are many fewer builders building spec homes. I will further note that even though the total number of new starts for sale peaked in the summer of 2006, the total number of completed new starts for sale didn’t actually peak until Jan, 2008, at 199k, which was 40.8% of the total 488k new starts for sale at that time.
There is a lot of other FRED data available on new starts, including sales of new starts by stage of construction, that you can find by using this link https://fred.stlouisfed.org/searchresults/?st=new%20houses%2… I will say - this time, the data appears to indicate it really is different.
Since the demand is way too high for the supply, I would say that taking buyers out of the market will probably make for a healthier housing market, and will help stop the crazy price increases.
From 2008 (housing crash) the new house construction is below the average. The existing zoning restrictions, especially around multi-family, condos are insane. These restrictions do not allow density and new communities getting further and further away. A significant portion of existing home inventory is pretty old, i.e., > 50 years. A very significant cohort of population is now getting married and raising families, these young families need house.
Not sure what is going to change, but US housing market is not serving the people. It is serving real estate agents, it is preserving and pushing price increase, etc. I mean I live in a place with acute housing shortage and the zoning on certain areas are like 10K sq feet. Can you imagine that?? Naturally home prices are over 1.5 million.
Not sure what is going to change, but US housing market is not serving the people. It is serving real estate agents, it is preserving and pushing price increase, etc. I mean I live in a place with acute housing shortage and the zoning on certain areas are like 10K sq feet. Can you imagine that?? Naturally home prices are over 1.5 million.
There are a lot of governments that have recognized they have a housing problem. In my area, they are opening up all lots to add a second home/ADU even if the lot was originally a ‘single’ lot. Yes, I know, there are many who are going to whine that this is causing ‘the death of SFHs’. No, it won’t. SFHs will still exist. They may end up being zero lot line homes, with very small lots, but there will always be some SFHs with large lots available - if you want to pay for them.
Because our area is also a tourist area, they are also requiring that if the owner wants to have a short-term rental, in order to build the 2nd unit, the owner must actually live in one of the homes. That’s to try to help prevent all of the 2nd units from becoming vacation rentals. We’ll see how well that works. I suspect that enforcement of those rules will be lacking.
Of course, since this affordability problem took years to develop, it’s also going to take years to unwind. That said, when looking at several different indices, the US is still one of the most affordable places in the world to own your own house https://www.numbeo.com/property-investment/rankings_by_count…
In my area, they are opening up all lots to add a second home/ADU even if the lot was originally a ‘single’ lot.
These are half-baked measures still trying to preserve existing home owners. Why not allow multi-family constructions, apartment/ condo constructions.
America is in dire need of Apartments, which will provide reasonable housing for many. The obsession with SFH, and serious antipathy towards apartments is baffling. Apartments/ Condos’ with common open area, community area is far better solution. But I don’t see it coming.
America is in dire need of Apartments, which will provide reasonable housing for many.
How does that help your contention of A very significant cohort of population is now getting married and raising families, these young families need house.?
Or are you saying that you want to kill the ‘American Dream’ of owning your own house?
The obsession with SFH, and serious antipathy towards apartments is baffling. Apartments/ Condos’ with common open area, community area is far better solution. But I don’t see it coming.
Until the cultural obsession with owning your own home that’s been sold as the American Dream changes, I don’t see that young families will be satisfied with apartments/condos.
are you saying that you want to kill the ‘American Dream’ of owning your own house?
House is not necessarily “Sing family Resident with a 1/4 acre backyard”. Those who can afford it great. But house, is a place to live, an apartment for people/ families that are renting, and condos if they want to own.
I lived all my life in “apartment”, we are yet to buy an house. There are few inconvenience, I missed on home price appreciation and building equity on house etc. It is a choice we made, not recommending for everyone.
On the other hand, apartments allow people to have housing with reasonable rents.
House is not necessarily “Sing family Resident with a 1/4 acre backyard”. Those who can afford it great. But house, is a place to live, an apartment for people/ families that are renting, and condos if they want to own.
I’ll take that as a yes.
On the other hand, apartments allow people to have housing with reasonable rents.
Around here, as in many places, rents have also skyrocketed and are no longer reasonable. It all traces back to too much demand and too little supply, for both purchases and rentals. That’s not going to be solved quickly.
That’s not going to be solved
The supply demand is not really as bad as many project. There is a significant number of houses are held off the market, and this number is increasing as a % of overall housing. I don’t know the reason, or the drivers. This is not vacation homes, homes waiting to be rented or waiting to be sold. These are houses, where the owners simply takes them off the market, just holding it as an asset, like gold bars in your locker.
Currently the new construction and new household formation are finely balanced supply slightly exceeds. This is where Apartment construction comes. Apartment constructions will allow density in existing communities, therefore the time required to develop the lots, communities can be shrunk, it will impact the rent situation. In US your rent covers your mortgage, think about this for a second, the rent is not only covering the interest payment but principle payment also. Most other places in the world, the rent hardly covers the interest component of the mortgage.
There are wider forces in play. The balance or shortage is to a certain degree maintained by people with capital in these areas on purpose. Unfortunately real estate brokers, and many home owners (who are SFR owners) are a powerful group. It is amazing that many believe people living in Apartments are poor, uneducated, criminals.
Remember, US has surplus malls, surplus shopping centers, but not enough houses. Do you know how many malls can be quickly demolished and an apartment complex or condos can be build there? or even multi-use like some strip malls with housing. I cannot understand the reluctance of the lawmakers in even allowing this. I am not talking about rural Tennessee, I am talking about CA, New York, Phoenix, etc.
The supply demand is not really as bad as many project. There is a significant number of houses are held off the market, and this number is increasing as a % of overall housing.
Here’s a better look at the number of houses held off the market https://fred.stlouisfed.org/series/EOFFMARUSQ176N While it’s certainly up from the lows in 2020 Q2 & 3, the current rates are below any other quarter since 2010. So, not only is the number of houses held off the market not really increasing, since the total number of houses has been increasing, the percentage of houses held off the market is actually decreasing.
I have friends that own rentals and held them off the market since covid started. They were afraid that someone would get in and they wouldn’t be able to get them out.
I have friends that own rentals and held them off the market since covid started. They were afraid that someone would get in and they wouldn’t be able to get them out.
If I was afraid to lease out one of my rentals (I have 3), I certainly would be selling it, rather than having it sit empty, especially in the current market. That said - anecdata doesn’t change the actual data showing that Kingran’s assertion that houses being held off the market are increasing both in number and percent of total homes is incorrect.