Detroit, Michigan Several employers in Detroit, Michigan, including Blue Cross Blue Shield and Quicken Loans, will pay their employees to live downtown, close to where they work. New renters can receive $3,500 over two years toward the cost of their apartment, and those who renew leases can receive $1,000. And if you buy a new home in an eligible neighborhood, you could be looking at $20,000 in forgivable loans toward the purchase of a primary residence.
Baltimore, Maryland It pays to buy a home in Baltimore—literally! Qualifying buyers can receive $5,000 toward the purchase of a primary residence through the Buying Into Baltimore or City Living Starts Here programs. Those willing to buy a home that has been vacant can apply to the Vacants to Value Booster Program, which awards $10,000 to eligible home buyers to put toward closing costs.
Niagara Falls, New York Niagara Falls wants to attract more than just tourists—and they’re looking for young people, in particular. In an effort to combat its population decline and recruit new residents, the city of Niagara Falls promises to pay off up to $7,000 in student loan debt over two years for any recent graduates who live near Main Street.
New Haven, Connecticut New Haven, Connecticut, is really rolling out the red carpet for new residents. First-time home buyers can receive up to $10,000 in forgivable loans to put toward down payments and closing costs. And for anyone buying a historic (and out-of-date) home, New Haven may provide up to $30,000 in forgivable loans to perform energy-saving upgrades. Plus, parents of school-age kids may not have to sock away money for college, thanks to the city’s commitment to provide free in-state college tuition to any child who graduates from New Haven public schools.
Anywhere, Alaska Do you dream of living in Alaska? If you do, you could earn $1,000 a year just for living there. The state of Alaska maintains a Permanent Reserve Fund that pays dividends to residents who have lived in the state for at least one calendar year and plan to remain there indefinitely. So, pack your thermals and head out for a new life of adventure.
Harmony, Minnesota With a population that hovers around 1,000, Harmony, Minnesota, wants to grow. If you build a brand-new home there, the Harmony Economic Development Authority will give you up to $12,000 in the form of a cash rebate. Nestled in the midst of some of the Midwest’s biggest farms, “The Biggest Little Town in Southern Minnesota” may be the perfect destination for anyone who loves country life but still wants modern amenities like shops, restaurants, and quality schools.
Marquette, Kansas Marquette, Kansas, will give you land to build a home—for free. This small town in the heart of America wants to attract new families to the Westridge area, where residents can enjoy spectacular views of the sunset and rolling hills, typical of the big-sky prairie. With only 650 residents, it’s a place where neighbors know each other and parents feel comfortable letting their kids play outside and walk to school.
Lincoln, Kansas Lincoln, Kansas, has built a completely new subdivision filled with zero-dollar lots for eligible newcomers to build a home. The small-town neighborhood boasts proximity to the city park, baseball field, and the junior-senior high school as well as the Lincoln Carnegie library, the golf course, and the rolling hills overlooking the Saline River.
Curtis, Nebraska Free home sites are available to build new homes in the Roll’n Hills subdivision of Curtis, Nebraska. Described as Nebraska’s Easter City—a nod to their annual Palm Sunday pageant—Curtis has a 9-hole golf course and is home to the Nebraska College of Technical Agriculture.
From the New York site:Microsoft cofounder Paul Allen lives a pretty fabulous life. With an estimated net worth of $18 billion, he’s the 26th wealthiest man in the world, and he has the fancy yachts, planes, and lifestyle to prove it. Allen also collects a ridiculous amount of properties across the globe.
From a hilltop mansion on the French Riviera to an entire island off the coast of Washington, Allen has made his fair share of blockbuster purchases over the years.
Allen’s primary residence is a 10,000-square-foot waterfront home on Mercer Island, a ritzy enclave of Seattle. He owns a total of 11 mansions on the island, including one that’s just for his mother and another that houses a full-size basketball court, swimming pool, and fitness center.
Allen’s most recent purchase on Mercer Island was a 3,000-square-foot bungalow that he reportedly paid $5.4 million for.
He bought Allan Island, off the coast of Washington, in 1992. Though he initially had plans to build a dream home on the island, its secluded nature and lack of electricity made construction difficult. He sold the island in 2013 for a discounted $8 million.
In 1993, Allen purchased a former sheep ranch in Tetonia, Idaho. For years, the property operated as the Teton Ridge Ranch, a five-suite luxury mountain lodge. It closed for business in 2009.
In 1997, Allen bought a 12,952-square-foot Mediterranean-style home in Beverly Hills. Among its ridiculous amenities is a funicular that shuttles guests from the pool deck to a tennis court located on a lower part of the property.
Also in 1997, he paid $20 million for “The Enchanted Hill,” a Beverly Hills estate that previously belonged to Hollywood legends Frances Marion and Fred Thomson. Allen angered many in the community when he demolished the historic property in 2000. He hasn’t built anything on the land since then, though he did terrace the hillside.
Allen bought this glassy contemporary home in Malibu’s Carbon Beach for $25 million in 2010. In 2014, he sold it to CBS President Les Moonves for $28 million, reportedly because he “hated the sound of the ocean.”
Allen owns properties in Northern California as well. In November 2013, he paid $27 million for this 22,000-square-foot home in Atherton, one of Silicon Valley’s wealthiest neighborhoods and the most expensive zip code in the US.
He dropped a reported $7.5 million for the historic 10-acre property known as the “Thurston Estate” in Kailua-Kona, Hawaii. In addition to a 12,000-square-foot main house, there’s an employee residence, beach house, boat shed, and a private harbor.
In 2011, Allen paid $25 million for the penthouse in an apartment building on Manhattan’s Upper East Side. He had purchased an apartment on the 11th floor of the same building in 1996, at a reported price of $13.5 million.
His international real-estate holdings include the Villa Maryland, a hilltop mansion in the Côte d’Azur town of St. Jean Cap-Ferrat. He employs a staff of 12 and counts Bono and Andrew Lloyd Webber among his neighbors.
He also has a house in London’s Holland Park neighborhood, on the same cobblestone street where Richard Branson owns a home.
When he heard his favorite Seattle movie theater was going to be demolished, he decided to buy it. His development company, Vulcan, refurbished the Cinerama with state-of-the-art Dolby sound and projection systems, including the world’s first Christie 6P laser projector. It reopened in the fall of 2014.
But no discussion of Paul Allen is complete without mention of his yachts. There’s the 303-foot Tatoosh, which has a cinema, swimming pool, and accommodations for 20 guests.
And the 414-foot Octopus, where Allen hosts his famous celebrity-packed parties during the Cannes Film Festival.
Bad credit? No credit? No problem—or so, many of those all-too-catchy loan ads promise.
But while you might be able to finance a used car with less-than-stellar credit, getting approved for a home mortgage when you have FICO scores dwelling deep in the cellar can seem like an infinitely steeper climb. An Everest-level climb, in fact.
But here’s the shocker: It can be done, particularly if buyers know where to score a mortgage. That’s where realtor.com®’s penny-wise (but never pound-foolish) data team comes in. As it turns out, there are plenty of cities where a not-great credit score—say, well under 650—won’t stand between buyers and their dream home. And yet, in other parts of the country, buyers are delusional if they think they’re getting a mortgage without a nearly perfect score—and boatloads of cash for a down payment. We located the top metros for both.
So how do you snag a home mortgage without an excellent credit rating? It’s largely a matter of what government loan programs are available in a specific area—and those vary substantially. The U.S. Department of Agriculture, for example, sometimes offers no-money-down loans to borrowers whose scores are below 640—but only for homes in a rural ZIP code.
Federal Housing Administration loans, among the most popular government-backed mortgages, allow borrowers with credit scores as low as 500 to qualify with a 10% down payment. (They must have scores of 580 to snag loans that require only 3.5% down payments.) But plenty of sellers choose not to accept them if they have other offers.
On the exclusionary side of the equation, home prices and market hotness play leading roles in keeping credit rating requirements high. Maybe toohigh if you haven’t been tending to your credit like a weed-free garden.
“When you’ve got 25 offers on a house and you’re the seller, you’re more likely to take a cash buyer or a conventional loan with 20% down,” says Courtney James, owner of Urban Durham Realty in Durham, NC. (Conventional loans, not backed by a federal agency, generally require a credit score of at least 620; anything lower than 650 is considered “OK,” “poor,” or “bad” by rating agencies.)
To find out where credit-challenged buyers live out the American ideal of homeownership, we calculated the share of mortgages in the largest 200 metros* obtained with a 649 FICO score or lower. The share of mortgages was calculated over a 12-month period from July 2017 through June 2018. We limited rankings to one metro per state.
So let’s start with the feel-good news: places where would-be home buyers with poor or downright crummy credit scores can still dare to dream!
Median home list price: $147,300 Share of borrowers with a 649 FICO score or lower: 39.1%
Although the state capital of West Virginia is a college town, the city’s overall population is aging. There’s been a big decline in chemical industry or coal jobs. That’s caused many folks to put their homes on their market.
This has opened the door for first-time buyers seeking move-in ready, three-bedroom homes near downtown, says local real estate agent Margo Teeter of Old Colony Realtors. These single-family homes start around $130,000, but can be found for less.
“We’ve got a buyer’s market,” says Teeter. Due to the relative abundance of homes on the market, she says, “our area has more motivated sellers.”
The affordable prices have led to an increase in young buyers, ranging in age from 22 to 35, who take advantage of the lower credit scores required for USDA and FHA loan programs. Most just don’t have the credit history or scores to get into other kinds of more traditional loans, says mortgage banker Joey Starcher of Victorian Finance.
Median home list price: $209,950 Share of borrowers with a 649 FICO score or lower: 35%
This quiet, family-friendly town along the Kentucky border is best known as the home to the U.S. Army base Fort Campbell. (It’s also just 45 minutes away from Nashville.) So it makes sense that many folks are becoming homeowners with the help of Veterans Affairs loans, which require a minimum credit score of just 620.
Most of local real estate agent LauraStasko‘s clients are scoring entry-level, three-bedroom, vinyl-sided ranch homes in suburban areas near the base. These run from about $100,000 to $130,000—a fraction of the national median home price, just below $300,000.
But buyers on a budget in Clarksville, with its quaint downtown filled with older, brick buildings, stately Victorian houses, and parks, had better act fast.
“Anything under $140,000 or $150,000 has been flying off the market,” says Stasko.
Median home list price: $239,750 Share of borrowers with a 649 FICO score or lower: 35%
Corpus Christi has plenty of attractions for buyers: It sits on a large, shallow bay that attracts a diverse flock of water birds, songbirds, and raptors. This helped it earn the title of—you guessed it—“America’s birdiest place,” according to the San Diego Audubon Society. There are plenty of jobs in the medical, oil refinery, construction, and, with nearby tourist destinations like Mustang Island, hospitality industries.
Yet the city has the fifth-lowest credit scores in the United States, with an average of 638, according to a report by Experian.
That hasn’t stopped people from buying houses. Buyers can still find 1,200-square-foot starter homes for under $160,000 in desirable areas within Corpus Christi like Del Mar and Lindale, says local agent Monika Caldwell of Hunsaker & Associates.
In addition to FHA loans, the city promotes multiple locally and federally funded home buyer assistance grants that help out buyers with down payments of up to $10,000. Not bad!
Median home list price: $229,500 Share of borrowers with a 649 FICO score or lower: 30.4%
The citrus groves and cattle ranches that used to occupy much of the land around Lakeland has been gradually overtaken by 55-plus communities and housing developments for young families. That’s because housing prices have been soaring in nearby cities such as Tampa, where they’re a median $266,250, and Orlando, where they’re $260,000, according to realtor.com data.
“Someone with poor credit … has to go where the [home] prices are lower, ” says Monique Youngblood, mortgage broker with US Mortgage Lenders. “Florida is getting really expensive, and prices in Lakeland are still pretty decent.”
Buyers can find new homes in South Lakeland for around $180,000, says local Realtor® John Martinez of Coldwell Banker Residential Real Estate. Older properties from the 1970s start around $140,000. To afford them, most of Martinez’s clients are using FHA loans that require only about 4% or so down of the purchase price.
Median home list price: $218,000 Share of borrowers with a 649 FICO score or lower: 26.5%
It’s easier to become a homeowner in Augusta, on the banks of the Savannah River, because home prices are just so much cheaper here than in much of the rest of the country.
Three-bedroom, two-bathroom homes in the millennial-friendly neighborhood of National Hills, right near the prestigious Augusta National Golf Club, can be picked up for $100,000 to $150,000. That’s good news for young buyers, many of whom haven’t had the time to build a strong credit history.
Local lenders offer competitive loan programs encouraged by the Community Reinvestment Act, designed to help buyers in low- to moderate-income Census tracts. Those programs require a minimum credit score of 620 and can include 100% financing for those who qualify.
“I do as many of those as I can,” says Brandon Mears, mortgage loan officer with South State Bank. “It’s a really great program for kids just coming out of college.”
Median home list price: $936,050 Share of borrowers with a 649 FICO score or lower: 4.3%
The market in Santa Cruz may not be quite as crazy as it is just over the hill in San Jose (where homes are a median list price of $998,000). But this Ferris wheel–graced beach town is still prohibitively expensive for many buyers, especially those with low credit. Those seeking mortgages are likely to need a jumbo loan—and thus a higher credit score and down payment.
“You might be able to find a small two-bedroom, one-bath house here in the low $800,000s,” says real estate agent Bri Chmel of Live Love Santa Cruz. That’s if you’re very, very lucky.
So buyers in this market, one of the sunniest spots along California’s northern coast, had better be ready to compete with all-cash offers from ultrawealthy, Silicon Valley techies. Best of luck with that.
Median home list price: $257,050 Share of borrowers with a 649 FICO score or lower: 5.4%
Wait, what? How did Fargo make it to this side of the list? It’s all about growth. Set on the Great Plains on the western edge of the Red River, Fargo has a bustling job market that’s led to an influx of new residents in recent years. The population jumped 15.9% from 2010 to 2017, according to the U.S. Census. That’s led to a lot of folks competing for a limited number of abodes.
Buyers are snapping up entry-level homes under $200,000 like seagulls stealing Cheez-Its on the beach. Because the market is so hot, sellers are passing over buyers who have a harder time getting a loan. Larger down payments and conventional loans (requiring a minimum 620 credit score) are usually needed to be considered for a contract.
Seller’s agents are seeking pre-qualification letters that prove that buyers have already gone through all the steps to get approved by the bank. And when it comes to older homes, many sellers prefer to avoid FHA loans altogether to avoid the more stringent loan appraisal process.
“Sellers here can be pickier about how they want their home financed,” says John Colvin, broker-owner of Century 21 FM Realty.
Median home list price: $350,000 Share of borrowers with a 649 FICO score or lower: 6%
Ann Arbor, home of the University of Michigan, is the quintessential college town, dotted with circa 1900 brick and wood-frame homes. In fact, it’s the most educated city in the United States, according to an analysis by WalletHub. That level of education correlates to above-average home prices, with $250,000 to $450,000 as the entry-level range.
That high starting point and lack of inventory make it hard for buyers to get in unless they have the income and credit to qualify for a conventional loan.
“It’s hard to get a home in Ann Arbor without very good credit,” says brokerMarge Everhart of the Marge Everhart Co. “I haven’t seen an FHA mortgage in years. Poor people are getting pushed out.”
Median home list price: $356,300 Share of borrowers with a 649 FICO score or lower: 7.2%
Every Tuesday, when James, the Urban Durham Realty owner, asks her 25 agents to raise a hand if they’ve put in or received offers on homes for their clients in the past week, almost all hands are in the air. When she asks those agents if they were involved in a multiple-offer situation, most hands remain raised.
“This is unprecedented,” says James. “Anything under $350,000 gets a lot of offers.”
The university town, one point of North Carolina’s Research Triangle, is a hub for the biotech industry and boasts a thriving startup culture while remaining relatively affordable. Just 10 minutes away from downtown in Southwest Durham, buyers have been trying to outbid one another on classic midcentury, brick, ranch-style homes in the midrange market of $350,000 to $400,000.
A bit farther out in more affordable North Durham, 10-year-old homes are going for about $250,000—if you can get an offer accepted.
“There are not a lot of FHA loan deals,” says James.
Median home list price: $612,550 Share of borrowers with a 649 FICO score or lower: 7.3%
On the edge of the Flatiron Mountains, Boulder boasts beautiful panoramas befitting a Coors ad. It regularly pops up on lists of the best places to live for its high quality of life, and plentiful gigs. These things just keep driving up the cost of real estate.
Most buyers need to be able to meet the strict requirements and high credit scores for a jumbo loan. With a jumbo loan limit of $587,000, buyers need to have a hefty downpayment, too.
Boulder is “surrounded by open space, but home prices have gone through the roof,” says Kelly Moye, broker with Re/Max Alliance and spokesperson for the Colorado Association of Realtors. They’ve risen 25% in just three years, from August 2015 to August 2018. “It’s unaffordable: People who need to get jumbo loans have to have exemplary credit.”
A record number of farms are hitting the market in South Africa as white farmers try desperately to offload land and leave the country before the government confiscates their acreage.
According to a report in the Sunday Express, the African National Congress (ANC) — South Africa’s ruling party — suggested last week that it is considering confiscating farmland from white farmers without compensation. In a meeting on “reforming land ownership,” several civil servants claimed that its time to “expropriate” land from the country’s white farmers in reparations for Apartheid.
ANC’s chairman Gwede Mantashe “sparked panic” when he agreed with reparations activists, telling a crowd that no white landowner should be allowed to control more than 25,000 acres.
“You shouldn’t own more than 25,000 acres of land,” Mantashe said. “Therefore if you own more it should be taken without compensation.”
South Africans — both black and white — aren’t thrilled with the idea since a major re-appropropration and re-division of land would severely harm South Africa’s farming industry, destroying jobs and opportunities for both black and white workers. Others, with knowledge of history — particularly what happened after the government grabbed land from white farmers in neighboring Zimbabwe — say they’re terrified the government has no real plan for its seizure and could send the country tumbling into economic ruin.
That hasn’t stopped the rhetoric, though, and South African President Cyril Ramaphosa is reportedly working on a plan to rewrite the country’s constitution to allow for the land grab, under pressure from the far left within his own country who are challenging the ANC in upcoming elections by telling voters they’ll grab the land without approval.
“We are not advocating for a white genocide. But the land belongs to us. We will do everything we can to get it back,” one far left leader told media during a meeting last week.
White farmers aren’t waiting around to find out who wins in the race to grab their land; they’re leaving. Hundreds of farms are now for sale in South Africa as farmers take off to Australia and other countries where farmland is plentiful and immigration requirements are lenient.
Seattle retained its long-running title of the hottest housing market in the country, according to the Case-Shiller national home price report, but there are signs of hope for would-be buyers frustrated by the slim supply in recent years.
Seattle home prices in April rose 13.1 percent over the same period a year ago. Las Vegas and San Francisco held on to their spots just behind Seattle with annual price growth of 12.7 percent and 10.9 percent respectively.
Seattle has been atop Case Shiller’s index for 20 straight months now, and a combination of a historic population boom and record-low supply of homes for sale has been the primary driver of the city’s skyrocketing prices.
Seattle’s streak is among the longest on record for Case-Shiller’s index. San Francisco had a 20-month run as the fastest growing market between 1999 and 2001, at the heart of the dotcom boom. Portland topped Case-Shiller’s index for 23 straight months from 1990 to 1992.
But another report released earlier this month indicates that supply-starved Seattle is starting to see a rise in the number of home for sale. According to the Northwest Multiple Listing Service, brokers added 14,524 new listings in Seattle and the surrounding area in May, the first time that figure topped 14,000 since May 2008. It’s also the first time in close to four years that the market has shown an annual increase in the number of new listings.
Seattle’s median home sale price in May was $830,000, up more than $100,000 from a year ago.
Also on the rise are condo listings, an important trend because condos tend to be less expensive and represent an opportunity for first-time buyers. Condo inventory grew by 21.4 percent over last year, boosted by the addition of 1,803 new listings in May.
While increased supply isn’t a cure-all for bringing prices down, it can slow growth. Take Seattle’s apartment market where thousands of new units opened in recent years, and many are now sitting empty. This has caused landlords to offer incentives to renters like free rent and other perks.
The numbers: Construction expenditures were 1.7% lower in March compared with February, the Commerce Department said Tuesday. But a hefty increase to earlier spending estimates in prior months signals that outlays remain on a strong footing.
What happened: Spending ticked down to a seasonally adjusted annual $1.285 trillion rate in March from a $1.306 trillion pace in February. March expenditures were 3.6% higher than a year ago.
The Econoday forecast was for a 0.5% increase in March.
The big picture: In March, outlays for public sector construction projects were little changed, but private-sector spending fell 2.1%.
Residential construction spending was 3.5% lower for the month, but 5.3% higher, compared with a year ago.
With expenditures now seen as stronger in January and February than the government originally estimated, total construction spending for the year to date is 5.5% higher than the same period in 2017.
What they’re saying: “Construction spending was quite soft in March, falling by 1.7%, likely reflecting at least in part the difficult weather during the month,” said Stephen Stanley, Amherst Pierpont Securities chief economist. “I continue to look for a sizable bounce back in construction activity in the spring, as weather delays dissipate.”
After over 40 years of abandonment, the city’s first public bathhouse may be reactivated for public use. At the Lower East Side’s Community Board 3 subcommittee for parks meeting on March 15, the Parks Department, who controls the bathhouse site, discussed issuing a Request for Expressions of Interest for the site, the Lo-Down reports. The RFEI is intended to get the ball rolling on redeveloping the property, which has been closed to the public since 1975.
The Parks Department hasn’t advanced any ideas about how it would like the site to be reactivated, but the Lower East Side community has made its wishes clear that it wants to see the former bathhouse become a community center. But after sitting unused for so many years, the building may be beyond repair. A 2001 inspection of the site at 326 Delancey Street by the New York City Housing Authority, who controls the Baruch Houses surrounding the property, determined that the building suffers from serious structural insufficiencies as well as mold and flooding in the basement.
The most likely course of action, a parks representative told the subcommittee last week, would be to demolish the building at a cost of $2 million. “Based on the 2001 inspection, we believe that’s probably what needs to be done,” Deputy Parks Commissioner Alyssa Konon said of demolishing the building. “However, if somebody wants to respond with some ideas around either restoring the building, or building on the historical elements there, of course, we’re open to that.”
Baruch Houses resident and founder of Good Old Lower East Side (GOLES) Damaris Reyes suggested creating a stakeholder committee that could be designated by the community board that would help guide the property’s redevelopment with meaningful input from the community. “You could go a long way towards soothing some of the fears and making sure that the community is happy with the (outcome),” Reyes said.
Once applications are received through the RFEI, which is expected to go out in three weeks, the department will return to CB3 to vet the options. If the proposals are warranting, a Request For Proposals will be issued.
Each year, leading economists look into their “crystal balls” in an attempt to foresee what the New Year holds for the construction industry. For 2018, this proved a tougher task given key uncertainties clouding the outlook at year end, including the incomplete 2018 federal spending package and as yet enacted tax reform legislation (just passed at time of publication). Add in storm and wildfire recovery boosting construction demand, costs and labor woes (further compounded by immigration reform), then throw in the pending mid-term elections, and the future is cloudier still.
That said, economists gave their best shot, and here is a Q&A covering their outlook for the overall U.S. economy and general construction as we neared the close of 2017. Next month, industry experts will take a targeted look at the prospects for the transportation sector.
Overall Economic Outlook
What level of U.S. economic growth do you see for 2018? What are some key drivers that will impact growth either positively or negatively?
Robert Dietz, senior vice president and chief economist, National Association of Home Builders (NAHB): NAHB sees continued modest yet positive growth prospects for 2018. We should continue to grow, but at below 3% rates. Wage growth is increasing, which is good for consumer spending and housing demand, but is a concern for employers. The wild card for 2018 and 2019 is tax reform. Smart tax reform that rewards small business and promotes housing will contribute to growth. Tax reform that increases taxes on homeowners to reward investors, including foreign owners of U.S. assets, will be counterproductive.
The tight labor market is a key limiting factor for overall economic growth. Increases for the labor force participation rate will help labor markets to continue to grow. However, absent those improvements, wage pressure could increase inflation and cause the Fed to move somewhat faster than its current gradual pace of interest rate hikes.
Ed Sullivan, chief economist, Portland Cement Association (PCA): We project GDP growth to be at 2.3% in 2018. We came off the worst recession since the Great Depression and there has been a tremendous pent-up demand. It takes time to fill this demand, and our growth has been slow.
It will likely continue to be slow driven in part by millennials who are in debt, who are taking their time to start families and who currently don’t participate in the housing market. The recession also changed peoples’ behaviors. But people forget and eventually they will return to old spending habits, just as millennials will one day start families and buy homes.
Ken Simonson, chief economist, Associated General Contractors of America (AGC): The economy should keep expanding at a moderate 2% to 2.5% rate, after inflation. However, this could be affected by big changes in tax and spending policy or by an international crisis.
Anirban Basu, chief economist, Associated Builders & Contractors (ABC): As we enter 2018, consumer confidence is at a roughly 17-year high, unemployment is at a 17-year low, financial markets are surging, the global economy is improving and leading indicators suggest plentiful momentum during the year’s early months. It has been many years since the U.S. economy entered the New Year with such momentum.
Consumer spending will continue to be the leading engine of growth. But that will be supported by faster export growth as the world economy continues to heal, and by faster business spending growth, particularly if pending corporate tax cut legislation is passed. In short, the economic outlook for the U.S. in 2018 is quite good.
There are abundant risks, however. One could argue that asset prices rose too fast and furiously in 2017. That could set the stage for significant asset price volatility in 2018. Stock and other prices can’t rise forever. This is particularly true given rising inflationary pressures, whether in the form of wages, tuition, rent, medical care or fuel. Should interest rates rise with unanticipated rapidity due to these emerging pressures, elevated asset prices could become jeopardized, setting the stage for negative wealth effects. This means that while 2018 should be strong for the U.S. economy, there are few guarantees with respect to 2019 or 2020.
How strong was construction in the commercial and housing markets in 2017, and what level of growth do you expect to see in both segments for 2018?
AGC: Single-family construction spending increased 9% through the first 10 months of 2017, about the same growth rate as in 2016. But multifamily construction really hit the brakes, slipping to a 4% growth. I think that in 2018, there will be a lot of rebuilding and renovations in areas of Texas, Florida and California devastated by hurricanes, flooding and wildfires. Meanwhile, multifamily building may dip after six years of generally torrid growth.
ABC: There was a considerable volume of building construction in 2017. Leading segments included hotel, casino, office, distribution center and multifamily construction. There are many forces at work, including Millennial demographics, the e-commerce revolution, foreign investment into commercial real estate and growth both in consumer and business travel. One suspects that this momentum will stretch into 2018 since both domestic and foreign capital is on the hunt for investment opportunities that yield income.
NAHB: On the demand side of the housing market, incoming household formation data show strength for the for-sale market and some softening for rental markets. These trends are consistent with demographic data that show a growing number of millennials entering their 30s. This process will continue to sustain demand for single-family homes in the years ahead.
Single-family construction should continue along its modest growth trend (7%), while still being constrained by supply-side bottlenecks, including lack of labor and rising building material prices. Nonetheless, builder confidence, as measured by the NAHB/Wells Fargo Housing Market Index, remains solid. Remodeling should also post gains given rising homeowner wealth and reduced homeowner mobility, which will increase the need for aging-in-place and other kinds of structural improvements.
Multifamily starts peaked in 2015, and NAHB expects a leveling off process to continue over the next few years. The decline in apartment starts in 2017 was steeper than expected, with a 10% 2017 decline expected. We forecast smaller but still negative growth rates over the near-term as rental vacancy rates increase, rent growth softens and housing demand momentum moves to the for-sale market segment.
PCA: We anticipate modest growth throughout the building construction market in both the nonresidential and residential sectors. That should translate into a growth rate similar to 2017.
Nonresidential is approaching a peak and there is slowing in sectors like industrial that are impacted by the macroeconomic environment. The single-family residential market should be fairly healthy in 2018. Gains, however, will be slowed by difficult application processes, lack of Millennial participation and modest increases in mortgage rates that will impact affordability. The multifamily market still has strong potential, but it too is reaching its cyclical peak. Like 2017, next year will likely see 350,000 units built.
The big surprise is the improvement and repair sector thanks unfortunately to two serious hurricanes and California wildfires. This sector saw strong percentage gains toward the end of 2017 and will continue to see these gains throughout 2018.
Raw Material Costs
Do you expect to see the costs of raw materials such as asphalt, cement, steel and lumber increase in 2018? If so, to what level and what is driving the increases?
NAHB: We expect continued gains in building material prices, particularly for lumber given tariffs on Canadian softwood lumber. Rising building material prices was the issue that increased the most as a concern in 2017. While still below the lack of labor and lots, prices for drywall, roofing materials and other building components increased in 2017 due to hurricane repair efforts and the broader growth of the housing market. We expect this pressure on prices to continue in 2018.
ABC: The past year was associated with noteworthy increases in construction materials prices. After slumping for much of 2014 and virtually all of 2015, global commodity prices stabilized and then began to rise in 2016/17.
A more contentious view on trade, including with respect to Canadian soft lumber, also served to elevate price pressures. During a recent 12-month period, softwood lumber prices surged 15%. Diesel fuel, natural gas, iron and steel and other prices also expanded for much of 2017.
Given the expectation that the global economy will heat up even further in 2018, one would expect that materials prices will continue to rise. However, the rise in materials prices could be quite gradual. Quantity supplied is already responding to higher prices in many categories, which should translate into more gradual price increases in general.
AGC: Materials costs ended a years-long slide in late 2016 and rose at a moderate rate in most of 2017. Those increases are likely to accelerate a bit further in 2018 as global demand picks up and construction continues to grow, albeit slowly and unevenly. I don’t foresee a return to the severe, widespread escalations and occasional shortages that cropped up before the last recession.
Employment and Labor Costs
In recent years, finding skilled and experienced workers has challenged many construction companies. In fact, for many, it has been their No. 1 impediment to growth. Do you foresee companies continuing to struggle with this trend in 2018? What impact, if any, will the administration’s stand on immigration have on the industry and finding workers?
AGC: Finding capable workers will remain the leading challenge for contractors in 2018. The job market is continuing to tighten after more than seven years of continuous job gains and ever-increasing retirements of baby boomers. Restrictive immigration policies and stepped-up deportations are adding to the competition for workers and threaten to slow the growth in the overall economy as many industries struggle to fill openings or to replace the customers who are kept out of the country.
NAHB: On the supply side of the construction market, we need additional gains in the labor force participation rate to allow employers to continue filling open jobs. The construction industry is in the middle of a labor shortage and data suggest it will not turn the corner quickly. Without growth in the size of the labor force, it will be difficult for the residential construction industry to continue adding workers at the current pace of a little more than 100,000 per year. Higher wages due to a tight labor market will bring in some additional workers, but will also increase cost pressures on employers.
We could, of course, build and remodel more homes if we could add workers even faster. The demand is there. The industry must recruit the next generation of construction workers.
PCA: There is no easy fix to the labor challenge. Training programs for skilled workers are great, but they take time and we see companies struggling with labor for several years to come. The labor shortage will continue to be an impediment to company growth and immigration reform will only worsen the trend. Labor-saving technologies will alleviate some of this, but they can only go so far.
ABC: The lack of skilled workers is apparent throughout the U.S. economy, whether in construction, trucking, healthcare, hospitality, cybersecurity or a host of other industry segments…
The year 2018 will be yet another during which America’s low labor force participation rates will continue to hamstring businesses in many segments, including construction. A confluence of factors has led to these circumstances, including cultural shifts, shifts in educational philosophy, the atrophying of apprenticeship programs in much of the nation, and the ongoing large-scale retirement of many of the most talented, skilled and experienced construction workers. The nation’s shifting stand on immigration will not help, with employers finding it increasingly challenging to secure both skilled and semi-skilled personnel.
With respect to construction, the impact is to raise the cost of delivering construction services and to stretch out timetables. That makes it less likely that construction projects can move forward because this serves to reduce the predicted rate of return.
The S&P/Case-Shiller national index rose a seasonally adjusted 0.7% during the three-month period ending in September, and was up 6.2% compared to the same period a year ago. The 20-city index rose a seasonally adjusted 0.5% for the month and 6.2% for the year.
What happened: Economists had forecast a 0.4% monthly increase, and a 6.2% yearly increase, for the 20-city tracker.
Case-Shiller’s national index regained its previous, bubble-era peak last year — and is 5.9% higher as of September. But the 20-city index, which is skewed toward the metro areas that experienced the biggest booms, is still 1.5% shy of its 2006 high.
Big picture: Home prices have surged in recent years as housing demand stirred to life amid ultra-lean supply. But Case-Shiller’s index, developed as a tool for tracking prices for real estate investors, may not capture the full story of what’s going on in the housing market.
An analysis by Trulia for MarketWatch shows that only 38% of U.S. homes have recovered their pre-recession peak. (That analysis is an update of a Trulia report from last spring, more on which can be found here.)
The two sets of data differ, in part because Case-Shiller’s is an index derived from observing price changes over time for a small subset of homes — and then extrapolating those across the broad market. The index also gives more weight to higher-priced homes, which are of greater interest to investors. In contrast, Trulia has individual price estimates of most of the homes in the U.S.
As Ralph McLaughlin, Trulia’s chief economist, told MarketWatch last spring, price trackers like Case-Shiller are a bit like stock indexes, like the Dow Jones Industrial Average DJIA, +1.09% , while data like Trulia’s is akin to the prices of individual equities.
Each method has its purpose, and each relies on assumptions. But using Case-Shiller to tell the story of how individual homeowners or neighborhoods may be faring “distorts the impression of how recovered the U.S. housing market is,” McLaughlin said.
Perhaps more striking is that McLaughlin thinks it will take years before all homes have regained pre-recession peaks. In fact, assuming a linear pace of recovery, that might not come until 2025, he thinks.
In September, Case-Shiller data showed that 16 cities saw annual prices accelerate from last month. Of three cities with monthly price declines, one was Seattle, continuing the trend of tepid monthly performances for one of the frothiest markets of the country.
Strong price gains were also seen in the FHFA’s house price index, released Tuesday. Nationally, prices were up 6.5% from the third quarter of 2016 to the third quarter of 2017.
30-year fixed-rate mortgage (FRM) averaged 3.93 percent with an average 0.5 point for the week ending December 14, 2017, down from last week when it averaged 3.94 percent. A year ago at this time, the 30-year FRM averaged 4.16 percent.
15-year FRM this week averaged 3.36 percent with an average 0.5 point, the same as last week. A year ago at this time, the 15-year FRM averaged 3.37 percent.
Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for the Definitions. Borrowers may still pay closing costs which are not included in the survey.
Quote Attributed to Len Kiefer, Deputy Chief Economist.
“As widely expected, the Fed increased the federal funds target rate this week for the third time in 2017. The market had already priced in the rate hike so long term interest rates, including mortgage rates hardly moved. Mortgage rates held relatively flat across the board, with the 30-year fixed mortgage rate inching down 1 basis point to 3.93 percent in this week’s survey. Mortgage rates have been in a holding pattern for the fourth quarter, remaining within a 10 basis point range since October.”