Residential Construction

July 2018

We are recognizing that the problem for housing today is coming from the supply side. Throughout our discussions with builders over the past 12 months, they unanimously indicate that business is almost too good – they can’t keep up. Unlike the housing collapse in 2008-2010, where demand-side issues were fueled by the sub-prime mortgage fiasco, this time, pressures are mounting on developers & builders, struggling to meet the needs of their markets. Potential for housing is still high, but regulations, pricing, land, labor and other demographics and employment influences are hampering potential for new construction. As these countervailing forces have intensified, we are seeing housing growth slowing. Growth is projected to continue, but what we see as the potential rate is being lowered in our forecasts.

Interested in learning more about what we are seeing and our forecasts, then click here to talk to us today.

Implication

Permits continue to point to a strong remainder of 2018, particularly in single-family construction.  Any dips mid-year appear to be timing and not a serious trend.

Implication

The sky is falling in the housing market, right? Well, if you read only June’s figure, you may say that. A SAAR decline from May 2018 of -12.3% says the robust growth is coming to an end. Even the growth from June 2017 to June 2018 is down -4.2%.

Or, is it?

Quarter 2 2018 is up +7.8% over same quarter in 2017. And, year-to-date, Jan to June 2018 average starts are up +7.2% versus same period year ago.

Housing is still going strong and will continue that way for rest of 2018. There is still great potential for growth in housing, but the external government-related forces are tempering our 2019 outlook.

Implication

Single Family Starts driving all the growth

Q2 2018 over Q2 2017, SF starts up +8.7%. January through June starts are up +7.6% over same period year ago. Yet, depending upon who you listen to, the sky is falling with a June starts figure of -9.1% versus May 2018.

Implication

Multi-Family continues to lag?

Q2 2018 over Q2 2017, MF starts up +5.7%. January through June starts are up +7.0% over same period year ago. Yet, the preliminary June starts figure of -19.8% versus May 2018, indicates things look bleak. Even multi-family starts are on a strong growth trend and our forecasts indicate it will continue into 2019 but will need to fight through some increasing pressures.

Implication

Our continual conversations with builders across several markets are showing the time from start to completion is lengthening in 2018, particularly mid-year.  Labor shortages and increasing regulatory restrictions continue to slow speed to completion.

Implication

Back up over 4.5% after a prolonged period of averaging around 4.0%. Increased rates combined with higher new and existing home prices are making an impact on affordability.

Implication

After hovering at 3% for the past several years, in the past year ARM’s have gone up nearly 100 basis points and are forecasted to continue to rise into 2019.

Implication

Prices go up – Demand goes down.  Monthly sales have been fairly volatile on a SAAR basis and clearly, they will continue to be influenced downward by accelerating prices.

Implication

See lumber prices, aluminum prices, copper prices and our discussions about labor shortages and the picture on newly constructed home prices is clear.  Prices go up – Demand goes down.  It’s a simple economic fact.  Add increasing mortgage rates on top of higher prices and new home sales should be down.

Implication

Despite rising prices and other issues related to housing, consumer and builder sentiment are at some of their highest points since 2000.  Builders continue to tell us this past year is the best they have ever had, even better than the mid-2000’s and in some areas, they are saying it’s at an unsustainable pace of growth.

Implication

Prices for lumber, iron, steel and aluminum were increasing even before tariff threats were looming. Lumber prices, in particular, have soared to the highest levels in the 2000’s.  Price increases are being channeled through all those segments of the housing industry that rely on these commodities, like structural framing, windows, doors, cabinets, flooring, plumbing, appliances etc., etc.

As tariffs appeared, those price increases accelerated.  Tariffs have a way of doing that.

2018-08-29T20:19:19+00:00