Prices of Residential Construction Inputs Up 23% Year-Over-Year | Bedford Real Estate

Prices paid for goods used in residential construction ex-energy rose 3.6% in May (not seasonally adjusted) and have increased 16.5% over the past 12 months, according to the latest Producer Price Index (PPI) report released by the Bureau of Labor Statistics. Building materials (i.e., inputs to residential construction less food and energy) prices have declined just twice since December 2019.

The index for inputs to residential construction, including food and energy, increased more (+4.1%) and is up 22.5%, year-over year.  This increase closely mirrors the 26% increase found in a recent NAHB survey.

Building materials prices have increased 9.4% year-to-date (YTD), in stark contrast to the 0.4% YTD seen in 2020.  However, the 2021 increase YTD is an outlier when compared to pre-pandemic years as well, more than tripling the largest January-to-May increase since 2015 (the most recent data available).

Steel Products

Steel mill products prices climbed 2.4% in May, a substantial slowdown after three months during which increases averaged 15.9%.  Even so, prices are up 75.4% over the past 12 months and have risen 59.4% in 2021 alone.

Softwood Lumber

The PPI for softwood lumber (seasonally adjusted) rose 19.2%–the largest monthly increase since September 2020—and set a record high for the fourth consecutive month. Lumber prices have remained extremely volatile since the 88.5% increase between April and September 2020.

Since falling 22.9% between September and November, the softwood lumber PPI has risen 81.2%. However, recent data from Random Lengths suggests that the index will decline next month as weakening prices in late-May and the first half of June are captured by the BLS survey.

Lumber Futures

Good news has been found in the futures market of late, as July lumber futures have fallen precipitously in recent weeks.  Since May 10, the price of July futures has declined 44.2%.  It is worth noting the features of lumber futures as they explain why changes in the futures market may not be a practical leading indicator of how much builders will pay for framing packages in the months ahead.

First, the specifications of lumber futures contracts state that a futures contract:

  • Is for delivery of roughly 110,000 board feet (all of which is made up 2x4s), assuming the future is held to delivery.
  • Only delivers lumber that is manufactured in California, Idaho, Montana, Nevada, Oregon, Washington, Wyoming, or Alberta or British Columbia, Canada.
  • Is limited to Hem-Fir, Englemann Spruce, Lodgepole Pine, and/or Spruce-Pine-Fir.  Southern Yellow Pine is notably absent.

Second, if hoarding takes place in the middle of the supply chain as wholesalers and/or distributors attempt to protect against upside risk, these supply chain members may sell inventories if futures and/or mill prices fall.  But the current cash or futures price has little effect on prices paid by builders until prices have fallen to a sufficiently low level for long enough to counteract middlemen being “trigger shy” in an environment of falling mill prices.

Exchange Rate Effects

In addition to nominal price movements and tariffs on Canadian lumber, cross-border purchasers are affected by the strength of the U.S. dollar relative to the Canadian dollar.

The USD has depreciated 4.8% YTD and 10.3% over the past 12 months which has raised the price of Canadian imports in real terms above nominal increases due to other market forces.

Gypsum Products

Prices paid for gypsum products increased 3.4% in May, reaching a record high for the second consecutive month. The index has climbed 14.6% over the past year, but the whole of that increase has occurred since October 2020. The index for gypsum building materials (e.g., drywall) has increased 17.9% since last October.

Ready-Mix Concrete

Prices paid for ready-mix concrete (RMC) climbed 0.2% (seasonally adjusted), following a 1.1% increase in April. Price volatility has eased in 2021 as four of the five monthly price changes YTD have been between -0.2% and 0.3%.

Prices increased in the Northeast (+2.3%) and South (+0.2%) regions in May, while prices paid in the Midwest (-1.1) and South (-0.4%) declined.

Other Building Materials

The chart below shows the 12-month and year-to-date price changes of other price indices relevant to the residential construction industry.  As Congress continues to work on an infrastructure package, the Construction Materials index is particularly salient.  This index is much more heavily weighted with products necessary and used in large amounts in the production of “traditional” infrastructure (e.g., roads, bridges, rail).

read more…

eyeonhousing.org/2021/06/

US housing market is short 5.5 million homes, NAR says | Pound Ridge Real Estate

The National Association of Realtors says the current state of the housing market is absolutely “dire,” the consequence of a housing shortage 30 years in the making.

According to the lobbying group, construction of long-term housing fell 5.5 million units short of historical levels over the past 30 years.

The NAR is calling for a “major national commitment” to build more housing of all types by expanding resources, addressing barriers to new development and making new housing construction an integral part of a national infrastructure strategy.

The report, authored for the NAR by the Rosen Consulting Group, highlighted a “chronic shortage of affordable and available homes [needed to support] the nation’s population,” noting the recent lack of new construction and a prolonged underinvestment in those affordable units as the main culprits.

From 1968 to 2000, the total stock of U.S. housing grew at an average annual rate of 1.7%. In the past 20 years, the U.S. housing stock grew by an annual average rate of 1% — and only 0.7% in the last decade.

In fact, coming off the Great Recession, new home construction in the U.S. between 2010 and 2020 fell 6.8 million units short of what was needed, the report said.

Residential fixed investment (RFI) — the sector of economic activity that accounts for housing construction and renovation — accounted for approximately 5% of the country’s total gross domestic product between 1968 and 2000. In the past 12 years, though, RFI accounted for only 3% of the country’s gross domestic product. This shortfall in RFI, the NAR reported, translated to a $4.4 trillion gap in housing market investment from 2000 to 2020.

Existing-home inventory at the end of April totaled just 1.16 million units, down 20.5% from the prior year.

In looking at underbuilt, major U.S. metros, the New York-Newark-Jersey City metro had an underbuilding gap of 148,650 units in the past nine years — the largest gap in the country, the study claimed. That’s followed only by the San Francisco-Oakland-Hayward metro, which reported a gap of 113,200 units; and the Riverside-San Bernardino-Ontario, California metro, which reported a gap of 107,700 units.

“There is a strong desire for homeownership across this country, but the lack of supply is preventing too many Americans from achieving that dream,” said Lawrence Yun, NAR chief economist. “It’s clear from the findings of this report and from the conditions we’ve observed in the market over the past few years that we’ll need to do something dramatic to close this gap.”

Specifically, NAR President Charlie Oppler said adequate increases in housing construction this decade would add an estimated 2.8 million American jobs and $50 billion in nationwide tax revenue.

“A number of factors from the past 20 years are responsible for the massive housing investment gap we see in America today, but what’s important now is that we find solutions that will get us out of this crisis and provide more stability in future markets,” Oppler said. “Additional public funding and policy incentives for construction will very clearly provide huge benefits to our nation’s economy, and our work to close this gap will be particularly impactful for lower-income households, households of color and millennials.”

In order to fill the underbuilding gap in the next 10 years, the NAR estimated that more than 2 million housing units would need to be built per year – an increase of more than 700,000 units per year relative to the pace of housing production in 2020.

Several potential policy changes were offered up by NAR in the report, including addressing the large shortages of capital for the development of affordable housing by expanding resources and maximizing the potential of existing programs, incentivizing shifts in local zoning and regulatory environments to increase the quantity of developable residential space, and increasing housing supply by promoting conversions of underutilized commercial space.

Oppler added that addressing the national underbuilding gap in the housing market will require a “coordinated approach” to the planning, funding and development of infrastructure.

As part of a $1 trillion national infrastructure plan, President Biden has earmarked $318 billion toward the construction and preservation of affordable housing.

read more…

housingwire.com/articles/

Mortgage rates average 2.93% | Bedford Hills Real Estate

Freddie Mac  today released the results of its Primary Mortgage Market Survey (PMMS), showing that the 30-year fixed-rate mortgage (FRM) averaged 2.93 percent.

“Mortgage rates continue to drift down as markets concur with the view that inflation increases are temporary,” said Sam Khater, Freddie Mac’s Chief Economist. “While mortgage rates are low, purchase demand has weakened over the last couple of months, primarily due to affordability constraints stemming from high home prices. With inventory tight, the slowdown in demand has yet to impact prices, meaning the summer will likely remain a strong seller’s market.”

News Facts

  • 30-year fixed-rate mortgage averaged 2.93 percent with an average 0.7 point for the week ending June 17, 2021, down from last week when it averaged 2.96 percent. A year ago at this time, the 30-year FRM averaged 3.13 percent.
  • 15-year fixed-rate mortgage averaged 2.24 percent with an average 0.6 point, up slightly from last week when it averaged 2.23 percent. A year ago at this time, the 15-year FRM averaged 2.58 percent.
  • 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.52 percent with an average 0.3 point, down from last week when it averaged 2.55 percent. A year ago at this time, the 5-year ARM averaged 3.09 percent.

The PMMS is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20 percent down and have excellent credit. 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.

Freddie Mac makes home possible for millions of families and individuals by providing mortgage capital to lenders. Since our creation by Congress in 1970, we’ve made housing more accessible and affordable for homebuyers and renters in communities nationwide. We are building a better housing finance system for homebuyers, renters, lenders, investors and taxpayers.

Housing starts surge 50% | Bedford Corners Real Estate

U.S. homebuilding bounced back in May as lumber prices pulled back from record highs. 

Housing starts rose 3.6% to a seasonally adjusted annual rate of 1.572 million last month, the Commerce Department said on Wednesday. April’s reading was revised lower to 1.517 million from 1.569 million. Economists surveyed by Refinitiv had expected housing starts to rise to 1.63 million.

Starts surged 50% on a year-over-year basis in May. Homebuilding rose in the Midwest, South and West but fell in the Northeast. 

The slight increase in homebuilding came as lumber prices topped out on May 7 and fell 22% through the end of the month, finishing below where they ended April. A lumber shortage that developed in the aftermath of COVID-19 lockdowns caused the cost of the critical material to soar, resulting in builders putting off projects and losing confidence.        

Permits for future construction slipped 3% to a rate of 1.681 million units in May, missing the 1.73 million units that economists were expecting. 

The drop in builder confidence was reflected in the latest National Association of Homebuilder’s/Wells Fargo Housing Market Index that was released on Tuesday. The index fell two points in June to 81, a 10-month low. 

read more…

foxbusiness.com/economy/

Homebuyers are growing weary of the housing market | Chappaqua Real Estate

Fannie Mae’s HPSI sees “good time to buy” sentiment drop to survey low

Homebuyers are feeling pretty discouraged by the housing market these days. The latest Fannie Mae Home Purchase Sentiment Index shows that just 35% of consumers believe now is a good time to buy a home, down from 47% in April. And those who believe it is a bad time to be a homebuyer increased to 56% from 48%.

“Consumers appear to be acutely aware of higher home prices and the low supply of homes, the two reasons cited most frequently for that particular sentiment,” said Doug Duncan, senior vice president and chief economist at Fannie Mae.

“However, despite the challenging buying conditions, consumers do appear more intent to purchase on their next move, a preference that may be supported by the expectation of continued low mortgage rates, as well as the elevated savings rate during the pandemic, which may have allowed many to afford a down payment,” Duncan said.

Though low inventory, bidding wars and high prices have knocked down homebuyer sentiment, other factors, such as a rebounding economy and stable income levels, pushed the overall HSPI index up one point to 80 in May.

In fact, four of the HPSI’s six components measuring market expectations increased month over month. The HPSI is still 12.5 points higher than it was in May 2020, when forbearance and unemployment heavily weighed down consumer sentiment.

Because the housing market feels very much like a zero sum game at this point, sellers again felt good about their position. Just over two-thirds of those surveyed in June said it was a prime time to list a home and tempt the swarms of homebuyers, unchanged from the prior month.

Respondents also remained virtually unaltered on how much homes will actually cost. The percentage of respondents who say home prices will go up in the next 12 months decreased from 49% to 47%, while the percentage who say home prices will go down remained unchanged at 17%. The share who think home prices will stay the same increased from 27% to 29%.

Mortgage rate expectations changed a bit in May for prospective homebuyers and sellers: The percentage who expect mortgage rates to go up decreased from 54% to 49% while the share of those who think mortgage rates will stay the same increased from 33% to 38%. The remaining 6% are hopeful they may slide back down.

Since rates have fallen back below 3% once again, Fannie Mae’s economic and strategic group revised its expectations for purchase and refinance volume. The economic group cut $43 billion from its 2021 purchase volume forecast; it now estimates that purchase mortgages will hit $1.8 trillion by year’s end.

Because record low mortgage rates fueled the refinance wave of 2020’s housing market, Fannie Mae also revised its refi origination volume to $2.2 trillion in 2021, an increase of $125 billion from the previous month’s forecast.

Borrowers who aren’t stuffing their pockets full of refi savings may be making it up on the job market. The percentage of respondents who say their household income is significantly higher than it was 12 months ago increased from 21% to 29%, while the percentage who say their household income is significantly lower decreased from 17% to 13%. To top it off, the percentage of respondents who say they are not concerned about losing their job in the next 12 months increased from 80% to 87%.

read more…

housingwire.com/articles/

Mortgage lenders loosened credit standards | Chappaqua Real Estate

Numbers are consistent with an uptick in mortgage rates and a downturn in applications.

Mortgage credit availability increased by 1.4% in May – a sign that volume-hungry lenders continued to loosen credit standards in a highly competitive market, according to Thursday data from the Mortgage Bankers Association.

MBA’s Mortgage Credit Availability Index (MCAI) which uses 100 as a benchmark — increased to 129.9 in May. A decline in the MCAI suggests that lending standards are tightening while a higher number suggests loosening credit standards.

Lenders concerned over borrowers’ ability to pay their bills at the beginning of the economic shutdown resulted in an exponential tightening of credit. However, May’s credit availability inched to its highest level since the early days of the pandemic, but remained at 2014 levels.

The MCAI on conventional loans increased 3.5%, while MCAI on government loans increased by 0.3%. Of the two component indices of the conventional MCAI, the jumbo MCAI increased by 5.1%, and the conforming MCAI rose by 1.6%, the MBA said.

MCAI-May

“The overall increases were driven by a 3% gain in the conventional segment of the market, with a rise in the supply of ARMs and cash-out refinances,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

Borrowers are “stuck in the middle” between the agencies’ minimum FICO requirements and the “FICO gates” imposed by lenders’ credit overlays. We have the tools to help them, we just need to use them. 

According to Kan, this is consistent with the uptick in mortgage rates and a slowing refinance market, as well as MBA’s Weekly Applications Survey data showing increased interest in ARMs. Monday data from the MBA revealed mortgage applications dropped for the third consecutive week.

Compared to last year, fewer people are applying for purchase mortgages – a likely result of home prices continuing to rise and prospective buyers avoiding astronomical bidding wars.

However, housing demand is still far outpacing supply, Kan said. The average loan size on a purchase application edged down to $407,000, below the record $418,000 set in February — but still far above 2020’s average of $353,900, the MBA reported.

“The jumbo index also jumped 5% last month, but even with increases over the past two months, the index is still around half of where it was in February 2020,” Kan said. “A rapidly improving economy and job market has freed up jumbo credit, as banks have deposits to utilize. However, there is still plenty of restraint, as many sectors have not fully returned to pre-pandemic capacity, and there are around 2 million borrowers still in forbearance.”

At this time last year, the Jumbo loan index was 54% lower than it had been in February 2020. Securing a jumbo loan was the most difficult it had been in four years, according to MBA data. But a flourishing housing market gave way to jumbos from a host of lenders, including Rocket Mortgage and United Wholesale Mortgage.

read more…

housingwire.com/articles/

How Lumber Prices are Hammering Housing Affordability for Home Owners | Armonk Real Estate

Skyrocketing lumber prices and supply-chain challenges continue to slow home construction, even amid higher demand. Both new home sales and existing home sales have cooled as prospective buyers are priced out of the market.

As appraisals struggle to reflect these ever-rising costs, home owners and builders continue to look for opportunities to minimize the impact these prices are having on the overall cost of the home. But as they strategize, prices are only getting worse.

“I am trying to build my own home — we are general contractors — and the price of lumber has set us back twice,” Michelle Govro from Missouri explains. “My permits are waiting, but in the one month of waiting for permits, the price of our bids in lumber went up substantially.”

“We even redrew house plans and are trying to build a smaller 1,600-square-foot home, and the lumber price is outrageous,” she added.

Others, such as Angela Cross from New York, have been watching the market to try to build their home at a better time only to be met with continued disappointment.

The Cross family began their home-building journey in April 2020, with an initial quote from a contractor in July 2020 once their land had been surveyed. Lumber prices had begun to ramp up, so a final quote was prepared in September 2020. The price of their turnkey home jumped 20% in just those two months.

“That was over our budget at that time,” she notes, “and after discussing it with our contractor, we decided to wait until February 2021, as he was hopeful lumber prices would come down.”

However, lumber prices have continued to rise instead, and what had been a 20% increase in September had become a 38% increase as of April 2021. Like Govro, the Crosses have tried to find every opportunity to cut costs — including reducing the square footage from 1,656 square feet to 1,500 square feet, and exploring alternative construction methods such as modular — as they continue to rent a two-bedroom house with their two daughters. But the costs are still too high.

Even the existing home market isn’t providing any relief.

“The homes are either sold very quickly, or are out of our price range, or need so much work that it is not worth it to us,” she shares. “Especially since we now own our own piece of land and have dreamed of building our home.”

Problem with rising costs and supply chain challenges are only bound to make these issues worse, as they continue to complicate the home building process.

Mark Reifsnyder, a mortgage banker of 22 years in Michigan, observes: “With construction, there is always the likelihood that costs change during the build due to fluctuations in the supply chain in any given year, as well as the customer making costly changes along the way. We plan ahead for that.”

“But when a builder cannot bottom-line a total cost because the costs run out of control due to an endless list of issues, it leads to a lengthier build,” he adds. “The problems just compound themselves.”

Home buyers in the current market need to earmark an additional 20%, beyond their 20% down payment, just to cover ‘what-ifs’ — and in some cases, “that isn’t even enough,” he notes.

“What confuses things even more is one day there is a news story about supply shortages, but the next day there is a story about stocked lumber yards that simply don’t have the manpower to get materials out the door fast enough,” he adds. “Forrest infestations in Canada, resin factories in Texas still offline due to the ice storm five months ago — the lists go on. This only adds to the confusion and frustration for people.”

read more…

nahbnow.com

New homes material prices rising 26% | Mt Kisco Real Estate

post published last week discussed how record numbers of builders were reporting on broad-based shortages of building materials and products.  The source of the information was the May survey for the NAHB/Wells Fargo Housing Market Index (HMI).  The same survey asked the HMI panel of single-family builders how total material costs for the same house have changed over the past 12 months.

The most comment response (checked by 28.0 percent of builders) was that materials costs increased by 20 to 29.99 percent.  However, 15.9 percent indicated that costs increased by 30 to 39.99 percent, 5.9 percent indicated 40 to 49.99 percent, and 15.2 percent even indicated that their costs had increased by 50 percent or more.

On average, the 12-month increase in material costs for the same house was 26.1 percent.  Historically, NAHB has included the material cost question on its HMI questionnaire six times since 2012.  The 2021 figure of 26.1 percent is the highest the average 12-month cost increase has been over that span—by a wide margin.  The previous record was 6.1 percent recorded in 2017.

Material availability and costs are one of several factors, including the cost of regulation and a general shortage of construction labor, limiting the supply of housing, particularly for the entry-level market where additional inventory is badly needed.

read more…

eyeonhousing.org

New homes sales jump 48% year over year | North Salem Real Estate

Sales of new U.S. single-family homes dropped in April as prices surged amid a tight supply of houses, which is threatening to slow the housing market momentum.

New home sales dropped 5.9% to a seasonally adjusted annual rate of 863,000 units last month, the Commerce Department said on Tuesday. March’s sales pace was revised lower to 917,000 units from the previously reported 1.021 million units. Economists polled by Reuters had forecast new home sales, which account for a small share of U.S. home sales, at a rate of 970,000 units in April.

New home sales are drawn from a sample of houses selected from building permits and tend to be volatile on a month-to-month basis. Sales surged 48.3% on a year-on-year basis in April. Monthly sales declined in the populous South, the Midwest and Northeast, but rose in the West.

The market for new homes is being boosted by near record low inventory of previously owned houses, especially entry level homes. The COVID-19 pandemic has fueled demand for spacious and more expensive accommodations as millions of Americans work from home and take classes remotely.

But the virus has disrupted labor supply at saw mills and ports, causing shortages of lumber and other raw materials.

That is limiting builders’ ability to ramp up construction of new homes to plug the inventory gap. The input shortages are raising new home prices as well. The National Association of Realtors reported last week that home resales dropped for a third straight month in April as prices surged to a record high because of the tight supply.

The median new house price soared 20.1% from a year earlier to $372,400 in April. Sales were concentrated in the $200,000-$399,000 price range. Sales below the $200,000 price bracket, the sought-after segment of the market, accounted for a mere 2% of transactions last month.

There were 316,000 new homes on the market last month, up from 304,000 in March. At April’s sales pace it would take 4.4 months to clear the supply of houses on the market, up from 4.0 months in March. A six-to-seven-month supply is viewed as a healthy balance between supply and demand.

About 73% of homes sold last month were either under construction or yet to be built.

read more…

reuters.com/article/usa-economy-housing/

Case-Shiller prices up 13.2% | South Salem Real Estate

  • Home prices in March were 13.2% higher in March, compared with March 2020, according to the S&P CoreLogic Case-Shiller National Home Price Index.
  • The 10-City Composite rose 12.8% year over year, up from 11.7% in the previous month. The 20-City Composite increased 13.3%, up from 12.0% in February.
A real estate broker, right, gives a tour for potential home buyers during an open house in Manhattan Beach, California.

Home prices in March were 13.2% higher in March, compared with March 2020, according to the S&P CoreLogic Case-Shiller National Home Price Index.

That is up from the 12% annual gain in February, and it marks the 10th straight month of accelerating home prices.

The March gain is the largest since December 2005 and is also one of the largest in the index’s 30-year history. Prices are being pushed higher by incredibly strong competition in the market. High demand is butting up against near record-low supply, resulting in bidding wars for the vast majority of listings.

The 10-City Composite rose 12.8% year over year, up from 11.7% in the previous month. The 20-City Composite increased 13.3%, up from 12.0% in February.

Cities with the strongest price gains continue to be Phoenix, San Diego and Seattle. Phoenix sits at the top with 20% year-over-year price increase, followed by San Diego with a 19.1% increase and Seattle prices rising 18.3%. All 20 cities reported higher price increases in the year ending March 2021 versus the year ending February 2021.

“These data are consistent with the hypothesis that COVID has encouraged potential buyers to move from urban apartments to suburban homes,” said Craig Lazzara, managing director and global head of index investment strategy at S&P DJI.

“This demand may represent buyers who accelerated purchases that would have happened anyway over the next several years. Alternatively, there may have been a secular change in preferences, leading to a permanent shift in the demand curve for housing,” he added.

Mortgage rates began rising during this period, with the average rate on the 30-year fixed just below 3% in February and then ending March at around 3.4%, according to Mortgage News Daily. Higher mortgage rates cut into purchasing power, and usually put a chill on home prices, but clearly unusual competition in the market is overwhelming the usual mechanics of the market.

There were just 1.16 million homes on the market in April, a 20% drop year over year, according to the National Association of Realtors. The continued shortage of homes, especially at the lower end of the market, forecasts that home prices will not cool off any time soon.

Sales are beginning to weaken, and prices usually follow, but again, the usual trends are not dependable in this very unusual housing market.

read more…

cnbc.com/2021/5/25