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Why Are Single Family Housing Starts so Sluggish?
Old 11-28-2018, 04:55 PM   #1
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Why Are Single Family Housing Starts so Sluggish?

https://fred.stlouisfed.org/series/HOUST1FQ

This graph shows just how low starts are, even with a much larger population in the USA than earlier. I read not to worry, it will come. Maybe, but when? Also, what is going on? Is it affordability, changes in preferences of the relevant demographic, changes in the demographic profile of US residents, or other factors?

New SFHs in old cities pretty much means that one must accept one of the very tall narrow buildings that are common infill units in city neighborhoods where old structures are torn down or drive a very long way into far suburbs or exurbs. Many cities have many freeways coming in. Seattle has essentially two, I5 running north and south, and I90 east and west. And there isn't much to the west other than Puget Sound, and not much to the east other than the Cascade Mountains. An amazingly unfriendly geography to become a big city.

I saw a photo of large new houses on small lots sitting unsold in Frisco Texas. It looks pretty grim, and evidently, the hoped for buyers feel the same.

But just a few blocks from my city condo are new SFHs of the tall narrow variety packed onto a lot where one 100 year old very nice home had been reaching its old age. Or on the prime spots, a new SFH at $2-3 mm. I don't think this neighborhood can handle that, so if you want new you will have a terrible commute or maybe a dark claustrophobic home close in. And you had better have strong legs because there will be a lot of stair climbing in these places

Many things seem to be rewriting the old expectations, and I feel like I really cannot guess how things will work out. My gut says very likely not a good time to go all in.

Ha
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Old 11-28-2018, 04:58 PM   #2
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Starting to see existing homes sales slow in my neighborhood. Last year it was rare to see a for sale sign up for very long. Today there are 6 within a 4ish block circle.
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Old 11-28-2018, 05:20 PM   #3
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That trend may be true nationally, but the Charlotte region (and Triad as well) RE market is on fire. Offers of asking price up to 20% above are still routine. In the Asheville region, gentrification has become a growing issue (but they deserve it).

Our little burb has had a population growth of 50%+ since we moved here in 2006. Hope to stay here until we age out, but not sure if I'll tolerate much more congestion.
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Old 11-28-2018, 06:04 PM   #4
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Here's another look at what's happening:

https://wolfstreet.com/2018/11/28/su...ousing-bust-1/

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Homebuilders are the pros in the housing market. They have the data, they know whatís going on in the market. And the market is where the buyers are, and the buyers have lowered their aspirations as their home-purchasing power is being whittled down by rising mortgage rates.

To make sales happen, homebuildersí first reaction is to throw incentives at potential buyers to get them to sign the deal, such as an upgrade to granite counter tops. But those incentives are hard to capture in overall pricing data. And thatís precisely why incentives are being lavished on buyers up front, rather than price cuts.

If incentives are not enough to move those houses, prices come down. And that has been happening. These lower prices of new houses are pressuring prices of existing homes further. Thatís what happened last time. And now itís starting to happen again.
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Old 11-28-2018, 06:59 PM   #5
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I think there are a number of reasons. Credit not as easy as in prior expansions, cost pressures, lack of workers and growing regulation.

Lots of pent up demand that may stay pent up for a while. This may help cushion somewhat when the econimy eventually softens (not predicting timing, but it will happen).

We are hoping that prices here in Northern Va continue to climb. Amazons HQ2 should help.
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Old 11-28-2018, 07:14 PM   #6
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That trend may be true nationally, but the Charlotte region (and Triad as well) RE market is on fire. Offers of asking price up to 20% above are still routine.
Not according to the president of one of the regions largest real estate firms. And I am seeing persistent discounts from builders and price reductions on new and resales I was not seeing in July.

https://youtu.be/QYLtEm1h9j0
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Old 11-28-2018, 08:38 PM   #7
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We have quite a few lavish, large new homes being built in our neighborhood this year; at least 1-2 are under construction on just about every block right now, surrounded by existing homes (smaller 1960's ranch homes like ours). All these large, expensive new homes sure make things look increasingly upscale around here.

But just recently, I sense that existing home sales may have started slowing down here a little. I have heard that mortgage interest rates have gone up? If so, maybe that could be a factor.

Prices for existing homes here still seem insanely high to us, right now. With higher mortgage rates, it's probably pretty tough to be a buyer.

For us, watching price and sales volume fluctuations is just entertainment. We both love our present homes and neighborhood, and have no desire to ever move in the foreseeable future.
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Old 11-28-2018, 11:10 PM   #8
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I think if you look at the home ownership rates you see a reasonably significant headwind in this recovery which given the overbuilding into the last recession and the tighter credit requirements meant the post recession recovery was pretty muted.

https://fred.stlouisfed.org/series/USHOWN
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Old 11-29-2018, 07:28 AM   #9
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Originally Posted by Red Badger View Post
That trend may be true nationally, but the Charlotte region (and Triad as well) RE market is on fire. Offers of asking price up to 20% above are still routine. In the Asheville region, gentrification has become a growing issue (but they deserve it).

Our little burb has had a population growth of 50%+ since we moved here in 2006. Hope to stay here until we age out, but not sure if I'll tolerate much more congestion.
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Not according to the president of one of the regions largest real estate firms. And I am seeing persistent discounts from builders and price reductions on new and resales I was not seeing in July.
https://youtu.be/QYLtEm1h9j0
In the Triangle area, real estate has clearly changed overnight. Red Badger, you might check the latest. Up until mid summer, everything was hot. It changed really fast. We see it in our neighborhood. Houses were selling before list ("coming soon!"). Not anymore. They are now languishing and suffering list price drops. The speed at which this happened was pretty amazing.

Midpack's reference to the Tate video is good. What he says is what we see in our neighborhood.
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Old 11-29-2018, 07:40 AM   #10
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I would think that increasing interest rates and the inability to pitch the complete write off of property taxes and mortgage interest might be contributors. Add to that increasing material costs, although lumber prices have finally started to drop in Oct.
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Old 11-29-2018, 07:43 AM   #11
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Not according to the president of one of the regions largest real estate firms. And I am seeing persistent discounts from builders and price reductions on new and resales I was not seeing in July.

https://youtu.be/QYLtEm1h9j0
Looks like that was posted September 28th. My guess is that things have only gotten worse since then.
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Old 11-29-2018, 07:57 AM   #12
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The demand for housing is largely in areas that are built out and have no available land or no land close to the employment centers. The Bay Area could easily fill 100,000 new single family houses with high salary buyers but there is no place to build them. The Phoenix area is largely built out to the edges of acceptable car commutes. The old adage of "drive until you can buy" no longer works there.

A lot of people emigrated out of coastal California cities as overseas buyers and high salary people bought everything they could get their hands on. The foreign buyers are largely gone now. That means less demand in other areas from the equity refugees.

Builders are a lot more cautious now as well. You don't see the takedowns of vast tracts of land for large planned communities that you used to. Wonder how Bill Gates feels about his big investment out in the boonies near the future interstate now.
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Old 11-29-2018, 08:05 AM   #13
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I would think that increasing interest rates and the inability to pitch the complete write off of property taxes and mortgage interest might be contributors. Add to that increasing material costs, although lumber prices have finally started to drop in Oct.

SALT caps of 10K only effect very specific markets. 750K cap on mortgages is an top end problem as the average new mortgage is $244K. What I'm seeing is a slowdown well below those values.
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Old 11-29-2018, 08:25 AM   #14
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In the Triangle area, real estate has clearly changed overnight. Red Badger, you might check the latest. Up until mid summer, everything was hot. It changed really fast. We see it in our neighborhood. Houses were selling before list ("coming soon!"). Not anymore. They are now languishing and suffering list price drops. The speed at which this happened was pretty amazing.

Midpack's reference to the Tate video is good. What he says is what we see in our neighborhood.
Exactly, the Triangle has changed a lot since summer. I see a huge issue right around the $300k pricepoint which I tie to interest rate jumps, because it puts them just out of reach. Lots of new builders giving away appliances, upgrades, tvs, financing incentives, and realtor incentives. Now I've even seen where new builds are being "bought" and then immediately listed for "rent to own". so it looks like they are being sold but not really. Builders are also delaying opening up new phases as they try to build demand with lower inventory and I know at least one lendor that provided their own deal starting in November to get more loans generated.

There is a lot of hope that entering in the new year things will pick up again as people get use to the rate hikes, salary increases, maybe some bonuses that will help make down payments, and of course the tax refunds.. all those together can create a little more cash for the buyers.


Things are selling but our neighborhood was the second fastest selling neighborhood in our city and it went from 1 day on the market to 30-45 days on the market.. still considered "hot" by most people standards but 30-45 days leaves a lot more inventory at any given point and some people are dropping prices just because its freaking them out as their expectations were 1 day...multiple offers. Of course you never know with selling prices if people are paying something towards closing, etc.
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Old 11-29-2018, 08:30 AM   #15
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My niece's husband is a builder in the Raleigh NC area. We spent 3 days together at my sister's house at Thanksgiving. He sold (signed off) 3 new houses from his recliner while he was there.
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Old 11-29-2018, 08:38 AM   #16
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Dunno why housing starts are off, but DD just bought a new house in July, DSister bought a new house yesterday and another DSister has a house being built, so we're doing our share to help.
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Old 11-29-2018, 08:54 AM   #17
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Quote:
Originally Posted by haha View Post
https://fred.stlouisfed.org/series/HOUST1FQ

This graph shows just how low starts are, even with a much larger population in the USA than earlier. I read not to worry, it will come. Maybe, but when? Also, what is going on? Is it affordability, changes in preferences of the relevant demographic, changes in the demographic profile of US residents, or other factors?
./.
Many things seem to be rewriting the old expectations, and I feel like I really cannot guess how things will work out. My gut says very likely not a good time to go all in.

Ha
I share your conclusion. Most of the analysis Iíve seen assumes housing ownership will eventually get back to levels seen in the 70ís and 80ís, but Iím doubtful. College graduates have far too much debt and need a larger share of their incomes and more time to pay it down. Home buying is a long term commitment to a specific location, and many jobs & professions for college grads donít offer that level of commitment. The birth rate is declining, and families with children are the most critical component of SFH demand.

I think the US has passed its peak in home ownership and new home construction, and this is still working its way through the economy.
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Old 11-29-2018, 08:59 AM   #18
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Quote:
Originally Posted by haha View Post
https://fred.stlouisfed.org/series/HOUST1FQ

This graph shows just how low starts are, even with a much larger population in the USA than earlier. I read not to worry, it will come. Maybe, but when? Also, what is going on? Is it affordability, changes in preferences of the relevant demographic, changes in the demographic profile of US residents, or other factors?

New SFHs in old cities pretty much means that one must accept one of the very tall narrow buildings that are common infill units in city neighborhoods where old structures are torn down or drive a very long way into far suburbs or exurbs. Many cities have many freeways coming in. Seattle has essentially two, I5 running north and south, and I90 east and west. And there isn't much to the west other than Puget Sound, and not much to the east other than the Cascade Mountains. An amazingly unfriendly geography to become a big city.

I saw a photo of large new houses on small lots sitting unsold in Frisco Texas. It looks pretty grim, and evidently, the hoped for buyers feel the same.

But just a few blocks from my city condo are new SFHs of the tall narrow variety packed onto a lot where one 100 year old very nice home had been reaching its old age. Or on the prime spots, a new SFH at $2-3 mm. I don't think this neighborhood can handle that, so if you want new you will have a terrible commute or maybe a dark claustrophobic home close in. And you had better have strong legs because there will be a lot of stair climbing in these places

Many things seem to be rewriting the old expectations, and I feel like I really cannot guess how things will work out. My gut says very likely not a good time to go all in.

Ha
I think there has been a big slow down due to interest rates going up plus house prices had risen too high.
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Old 11-29-2018, 09:25 AM   #19
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I think there has been a big slow down due to interest rates going up plus house prices had risen too high.
+1

I think it's as simple as that. Home prices in the Austin TX area have risen to insane levels over the last few years. While they can be somewhat rationalized with low monthly mortgage payments due to artificially low interest rates, those asking prices come into question when borrowed money is no longer cheap.
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Old 11-29-2018, 10:03 AM   #20
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SALT caps of 10K only effect very specific markets. 750K cap on mortgages is an top end problem as the average new mortgage is $244K. What I'm seeing is a slowdown well below those values.

The other side of the SALT equation is income taxes. In the 43 states that actually have one, it could be a significant factor contributing to the $10K limit. Logically, the average new single family home buyers are likely to be decent income earners to afford the new construction dwelling. I doubt the median household income of $60K or so is the typical customer buying the new SFH. Incomes in the 6 figure range are more likely the buyers. According to the feds (https://www.census.gov/construction/...uspricemon.pdf), the new home average price is $395K as of Oct 2018. Of course, this number varies wildly across the country (think Hawaii vs West Virginia)
Sadly, a large number of loans are issued with mortgage insurance, thus, the buyers are not bringing much to the table at closing. (see https://www.urban.org/sites/default/...hartbook_4.pdf) That means higher interest amounts for the larger mortgage amount borrowed, PMI, and the added effect of higher mortgage interest rates, coupled with the income taxes and more people may be affected by the SALT and mortgage limitations than previously considered.
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