Construction on new houses fell in May for the third month in a row even though builders are optimistic about the economy, perhaps a sign a shortage of skilled workers is holding the industry back.
The pace of so-called housing starts declined by 5.5% to an annual rate of 1.09 million, marking the lowest level in eight months. Economists polled by MarketWatch had forecast housing starts to total 1.23 million.
Home builders are now working at a slower pace than they were one year ago. They’ve especially pared back on apartment buildings and other large multi-dwelling units, giving more emphasis to single-family homes.
Part of the recent slowdown might reflect a bit of a pause after an unusually warm winter during which builders were much busier than usual. Some economists contend a higher level of construction that occurred earlier in the year would have normally taken place in the spring.
The residential #construction data may be experiencing some payback from favorable weather over the winter
Yet builders increasingly complain they cannot find enough good construction workers to get the job done and that could be constricting them. Consider the recent slide in building permits. They fell 4.9% in May to an annual rate of 1.17 million, the lowest level in 13 months.
Permits are also below year-ago levels,
In May, the biggest drop-off occurred in the South and Midwest. Construction rose slightly in the West and was flat in the Northeast.
For years the housing market has experienced a mini-renaissance of sorts as a steadily growing economy, rising employment and ultra-low interest rates enabled home people to buy homes.
The outlook might not be as favorable now, though. Aside from widespread labor shortages, prices for wood and other raw materials have also risen. And the Federal Reserve has embarked on a series of increases in a key U.S. interest rate that helps determine the cost of borrowing, a potential brake on future sales..
Sales of newly constructed homes stumbled in April, as builders retreated after a March surge that marked the strongest selling pace in a decade.
New-home sales ran at a seasonally adjusted annual rate of 569,000, the Commerce Department said Tuesday. That was well below the MarketWatch consensus forecast of a 610,000 annual rate, but was offset by sharp upward revisions to data from prior months.
In particular, March’s pace was raised to a pace of 642,000, the highest since October 2007.
April’s figures were 11.4% lower for the month, but 0.5% higher than in the same period a year ago.
The government’s new-home sales data are based on small samples and are often heavily revised. Total sales in the first four months of the year are 11% higher compared with the same period a year ago.
In April, the median sales price for a new home was $309,200, down from $318,700 in March and $321,300 in the year-ago period. As the pace of selling decelerated, there were 5.7 months’ worth of homes available, up from 4.9 months in March. A market with a healthy balance between supply and demand typically has about 6 months’ worth of inventory.
One factor worth noting, April was one of the rainiest months in decades, and that may have helped dent sales. Ralph McLaughlin, Trulia chief economist, said while he wasn’t worried about data from one month, builders still have a way to go before residential construction normalizes.
“If we compare the share of new home sales to total sales, that share needs to more than double,” McLaughlin wrote in a Tuesday note. New-home sales made up nearly 12% of total sales, about half the historical average, he said.
The 12-month rolling total of sales rose to 88.3% of their 50-year average, McLaughlin added.
One of President Trump’s common refrains on the campaign trail was that he would help rebuild the country’s crumbling infrastructure, leaning on his extensive experience in real estate and development to shepherd forth a plan to cut red tape, move projects forward, and put this country to work.
More than 100 days into his administration, his grand design has yet to take shape, though it’s been a constant source of conversation in D.C. There has been movement over the last few days, with reports saying that the Trump team has solicited bids for potential infrastructure investments from across the country and looks toward releasing a plan in the fall that would steer $200 billion of public money to infrastructure investment.
Curbed spoke to infrastructure experts to get their take on Trump’s nascent plans: what should be included, what to watch for as plans come together, and its chances to clear both houses of Congress and help America get to work.
Watch the numbers
Henry Petroski, a Duke professor and infrastructure expert, says that spending on roads and construction is “like apple pie and motherhood—everybody’s for it.” There’s a lot of talk about some kind of plan, a proposal both candidates supported last year, and representatives and senators will have a tough time voting against it, Petroski says. It’s still taking shape, but based on previous reports and statements from Trump administration officials, it would include a combination of government investment, new funding mechanisms to encourage private investment, and regulatory reform to help accelerate approvals and construction timelines.
That makes it all the more important to watch how funding is allocated. The trillion-dollar proposal the Trump administration is developing sounds like a lot, and it is: The federal government’s annual budget is about $3.8 trillion, including entitlements such as Social Security and Medicaid. Petroski believes the spending will most likely be spread out over 10 years, which means a 100 billion dollars annually, roughly double the amount currently being spent on roads and bridges. Doubling funding is a big deal, but it’s important to put things in perspective.
“We can’t just look at the headlines that say $1 trillion; we need the details,” he says. “This isn’t just an issue with this administration, however. This happens with every administration.”
Will states take the lead?
While the Trump administration has promised to have a plan together by this fall, some analysts, such as Petroski, are skeptical. He feels that health care and other priorities may derail infrastructure this year, at least on the federal level.
Federal delays in approving new spending, however, have spurred many cities and states to take action. Federal infrastructure is tagged to the gasoline tax, which hasn’t been raised since 1993 (Trump has flirtedwith the idea of raising it to fund infrastructure spending). But many states have raised their own rates or passed spending measure to fund infrastructure (federal dollars are, on average, only responsible for 25 percent of infrastructure spending, according to Petroski).
“Close to half the states have raised the state gasoline taxes in the last couple of years, and the others are considering it,” he says. “They simply can’t wait for the federal government to do something.”
Will we build green infrastructure?
In addition to how much we’re going to spend on infrastructure, another big question is what we’re going to spend money on. Armando Carbonell, a senior fellow and urban policy expert at the Lincoln Institute, says one of the biggest problems with any Trump infrastructure plan is the administration’s stance on climate change. It’s not just that any potential new construction may ignore public transit and sustainable options that reduce carbon emissions, it’s that not acknowledging a changing climate means money will be misspent.
“We need infrastructure to protect communities from the effects of climate change that can’t be avoided,” he says. “Sea-level rise, flooding, the effects of wildfires; in many cases, there are infrastructure needs that should be a priority, such as protecting coastal cities. If we don’t take climate change into account, we may well build infrastructure that is vulnerable. There are simple things we can do, such as building on higher elevations, that take account of a rising sea level. If we don’t do that, any investment might be a bad one.”
How will regulations be changed?
One of Trump’s promises has been that by creating a new regulatory system, reforming current processes, and encouraging public-private investments (or P3s) he can cut red tape and move long-stalled projects forward. Like other aspects of an infrastructure overhaul taking shape, the devil is in the details.
Carbonell says proper oversight and regulatory update could give the sector a massive upgrade, saving time and money. There are “great benefits” to looking at what and how we do things, especially the procurement and finance processes.
“I don’t have a black or white view of P3s, other than to say people need to be careful and look out for the public interest,” says Carbonell. “With proper regulations and design, P3s may be part of the solution. But we can’t get something for nothing. If we want a trillion-dollar investment in infrastructure, we need to spend a trillion dollars.”
Others have a more pessimistic view of pushing for more private investment in infrastructure. According to urbanist and journalist Yonah Freemark, the push for privatization in infrastructure investment is consistent with Trump’s rhetoric—Secretary of Transportation Elaine Chao has been open to finding new private funding sources for infrastructure, and the proposed Trump budget does make massive cuts in public transportation spending—but will also significantly shape the way any new infrastructure policy works.
“One thing we know is that there’s no way private-sector entities would be involved with an infrastructure project unless it involves user fees or ways to make revenue,” he says. “That makes sense; why would you invest in a project that couldn’t make money? But that changes the decision-making process. It’s the perspective of a profit-making private company, not the public sector.”
That translates into support for moneymaking projects, such as pipelines, toll bridges, and toll roads, not, say, water pipes, or roadways in less dense rural areas, according to Freemark.
What kind of jobs will it provide?
Trump has also promoted infrastructure as a jobs program to help with unemployment. According to Scott Myers-Lipton, a professor of sociology at San Jose State University and author of Rebuild America: Solving the Economic Crisis through Civic Works and Social Solutions to Poverty, it’s tough to “square the circle” when it comes to providing high-wage jobs while cutting regulations (and potentially, labor protections) and encouraging private investment.
He sees New Deal-era social works programs, which provided direct employment through the government, as a much more effective means of creating a large-scale jobs program and truly putting America back to work.
“How is it going to help people earn stable incomes?” he says. ”So far, he has not yet put forward a plan that, in that Rooseveltian sense, meets the goal of getting living wage jobs to as many people as possible. This was one of his big promises, spend big on infrastructure and drive unemployment down.”
You can’t blame a homeowner in Fresno, California, for viewing the thriving metropolis to its northwest with both envy and dismay. While San Francisco home values have surged since the recession, Fresno’s housing market is stuck in a rut. Less than 3 percent of homes in the city and its environs have returned to their pre-recession peak, according to a new study from Trulia. Median home values are a teeth-clenching $78,000 below their pre-recession peak.
The difference between the two California markets helps explain a key dynamic of U.S. housing a decade after the foreclosure crisis. Popular measures of the landscape, like S&P CoreLogic Case-Shiller Index and the FHFA House Price Index, show the market has recovered to levels last seen before the housing market went bust. But according to Trulia, this isn’t the whole, significantly bleaker picture.
Nationally, just 1 in 3 homes are worth more now than they were at their peak. While tech hubs in the Bay Area and Denver and job centers like Dallas or Nashville have seen home values explode past earlier highs, there are more losers than winners when you look across the country, Trulia’s analysis shows. And it’s really bad news if you live in Las Vegas, Tucson—or Fresno.
Many of the losers aren’t just losing—they’re getting trounced. There were 28 metros where fewer than 10 percent of homes have recovered their value since the bubble burst. Las Vegas has seen less than 1 percent of its homes returning to or surpassing what they were worth before the recession. The median sales price there is down a full $91,000 from its peak.
“It’s a reflection of just how well a metro area has recovered, broadly speaking,” said Ralph McLaughlin, chief economist at Trulia, adding that his findings largely correlate with other measures of metro-level growth, such as gains in income and total population.
As a result, it’s tempting to view these results through the prism of the 2016 election. Many of the metropolitan areas where home values lag the most are Rust Belt towns with little prospect for an immediate comeback, or Sunbelt cities whose peak home values were a product of the bubble that preceded the collapse.
McLaughlin says a zip code-level analysis offers a more nuanced view of the haves and have-nots. In much of the middle of the country, cities have stagnated while less populated regions lead the recovery. While it’s true coastal markets have experienced the lion’s share of appreciation, the majority of homes in pricey markets like New York, Los Angeles, Silver Spring, Maryland, and Fairfield County, Connecticut, are still worth less than a decade ago.
To be sure, Trulia’s research is based on its own estimates of home values, while the big indices are based on actual sales. Other research suggests a hot economy gives rural workers more choice, causing an outflow of potential employees to better jobs, often in the cities or on the coasts, potentially speeding a decline in home value elsewhere.
According to NAHB estimates, the total count of the second home stock reached 7.5 million in 2014, an increase of 0.6 million over 2009 when NAHB Economics last produced these estimates. The share of second homes among the total housing stock also increased from 5.4% to 5.6%.
It is worthwhile to understand the patterns of second homes because they could have a significant economic impact on local housing markets and thus have important policy implications. This analysis focuses on the number and the location of second homes qualified for the home mortgage interest deduction using the Census Bureau’s 2014 American Community Survey (ACS).
The county with the largest share of second homes is Hamilton County, NY with 79.3%, followed by Forest County (74%), PA, and Rich County (72.7%), UT. As one might expect, the top 10 counties with the largest share of second homes are mostly tourist destinations.
In-depth analysis, however, shows that the concentration of second homes is not simply restricted to conventional locations like beachfront areas. There were 913 counties spread over 49 states, where second homes accounted for at least 10% of the local housing stock. Only Connecticut and Washington D.C. were exceptions. 357 counties, 11% of all counties in the U.S., had at least 20% of housing units that were second homes.
27 counties in 14 states had over half of housing units qualified as second homes. Of these counties, five counties are in Michigan, four in Colorado and Wisconsin, two in California, Massachusetts, Pennsylvania, Utah, and one county each in Idaho, Missouri, North Carolina, New Jersey, New Mexico, and New York. These national patterns are mapped below.
Of course, the geographic locations of second homes also correspond to population density. Counties with more than 25,000 second homes are mostly located in or near metropolitan areas. The table below lists the top 10 counties with the most second homes. States with at least one such county are Arizona, Florida, California, Massachusetts, Illinois, New York, New Jersey, Nevada, South Carolina, Delaware, Texas, Michigan, and Maryland.
NAHB estimates are based on the definition used for home mortgage interest deduction: a second home is a non-rental property that is not classified as taxpayer’s principal residence. Examples could be: (1) a home that used to be a primary residence due to a move or a period of simultaneous ownership of two homes due to a move; (2) a home under construction for which the eventual homeowner acts as the builder and obtains a construction loan (Treasury regulations permit up to 24 months of interest deductibility for such construction loans); or (3) a non-rental seasonal or vacation residence. However, homes under construction are not included in this analysis because the ACS does not collect data on units under construction.
Existing home sales, as reported by the National Association of Realtors (NAR), increased 3.2% in September and were up 0.6% from the same month a year ago, as first-time buyers seized a 34% share of sales. Total existing home sales in September increased to a seasonally adjusted rate of 5.47 million units combined for single-family homes, townhomes, condominiums and co-ops, up from a downwardly adjusted 5.30 million units in August.
September existing sales increased in all four regions, ranging from 5.7% in the Northeast to 0.9% in the South. Sales increased by 5.0% in the West in September, despite a 5.3% decrease in the August PHSI for that region. Year-over-year, September sales increased by 2.3% in the Midwest and 1.6% in the West, while falling 0.9% in the South. The Northeast remained unchanged year-over-year for September.
Total housing inventory increased by 1.5% in September, but remains 6.8% lower than its level a year ago. At the current sales rate, the September unsold inventory represents a 4.5-month supply, compared to a 4.6-month supply in August.
The August all-cash sales share was 21%, down from 22% in August and 24% during the same month a year ago. Individual investors purchased a 14% share in September, up from 13% in August and a year ago. The September first-time home buyer share of 34% was up from 31% in August, and 29% from the same month a year ago. Distressed sales, comprised of foreclosures and short sales, fell to 4%, the lowest rate since NAR launched that series in 2008.
The September median sales price of $234,200 was 5.6% above the same month a year ago, and represents the 55th consecutive month of year-over-year increases. The median condominium/co-op price of $222,100 in September was up 6.1% from the same month a year ago.
Sales of new single-family houses in the United States rose 3.1 percent to a seasonally adjusted annual rate of 593,000 in September of 2016, compared to market expectations of a 1 percent decline. Figures for the previous month were revised down by 34,000 to 575,000. New Home Sales in the United States averaged 651.94 Thousand from 1963 until 2016, reaching an all time high of 1389 Thousand in July of 2005 and a record low of 270 Thousand in February of 2011. New Home Sales in the United States is reported by the U.S. Census Bureau.
According to the Census Bureau’s Housing Vacancy Survey (HVS), the nation’s homeownership rate in the second quarter of 2015 fell to a post-1967 low point of 63.4%. The homeownership rate decreased by 130 basis points on a nonseasonally adjusted basis from the second quarter of 2014 to the second quarter of 2015.
Compared to the peak at the end of 2004, the homeownership rate has steadily decreased by 5.8 percentage points and remains far below the 25-year average rate of 66.3%.
Homeownership rates decreased for all age groups on a year-over-year basis. The homeownership rate for household heads younger than 35 years old (34.8%) decreased by 110 basis points from the second quarter of last year. The largest decline, however, was for those aged 35-44 (58%), with an annual drop of 220 basis points.
The nonseasonally adjusted homeowner vacancy rate continues to drop after the Great Recession. The current homeowner vacancy rate is 1.8%, 10 basis points lower than last quarter and the second quarter of 2014.
The national rental vacancy rate remains relatively low and declined by 30 basis points to a 6.8% rate for the second quarter on a nonseasonally adjusted basis. The rental vacancy rate was 7.5% for the second quarter of 2014.
The HVS also provides a timely measure on household formations – the key driver of housing demand. Although it is not perfectly consistent with other Census Bureau surveys (Current Population Survey’s March ASEC, American Community Survey, and Decennial Census), the HVS remains a useful source of relatively real-time data.
May housing starts fell 11.1% from an elevated April to a seasonally-adjusted annual rate of 1.036 million units. The drop was broad based, falling 5.4% in single-family to an annual rate of 680,000 and multifamily falling 20.2% to 356,000. When viewed from a quarterly average, however, the first two months of the second quarter were better than the first quarter for both single- and multifamily starts: single-family up 9% and multifamily up 20%.
Furthering the upswing signals, building permits were up 11.8% to a seasonally-adjusted annual rate of 1.275 million, the highest since August 2007. The surge is concentrated in the Northeast where multifamily permits doubled from 130,000 per year to 264,000 per year and ahead of the 2014 rate of 64,000. Multifamily permit were also up in the Midwest (34%) but down in the South (-12.4%) and West (-8.1%).
Individual metropolitan permit data is available one month later than national figures and those data through April show substantial increases in multifamily permits over the same four month period in 2014 for New York metropolitan area (50%), Boston (56%), Pittsburgh (142%) and Albany (215%).
Single-family starts were up in every region when viewed from a two-month average and compared to the first quarter average. The Northeast was up 35.4% to a recent two-month average of 55,500 homes. The Midwest was up 26.1% to a recent average of 113,500 homes while the South made the smallest advance at 1.5% to 365,500 homes. The West was up 8.6% to a recent average of 165,000 homes.
Confirming an underlying advance, the NAHB/Wells Fargo Housing Market Index rose 5 points to 59 as builders increased their expectations for future sales.
U.S. construction spending climbed in April to the highest level in more than six years, fueled by healthy gains in housing, government spending and non-residential construction.
The Commerce Department says construction spending advanced 2.2 percent in April to a seasonally adjusted annual rate of $1 trillion, the highest level since November 2008. Spending had risen a more modest 0.5 percent in March.
The gain included a 0.6 percent rise in residential construction and a 3.1 percent jump in non-residential activity such as office buildings, hotels and shopping centers. Government projects increased 3.3 percent, reflecting the biggest jump in spending on state and local projects in three years.
Economists are looking for construction to provide solid support to the economy this year.