The numbers may be less-than-ideal but there is hope for the homebuilding industry thanks to new ideas and a growing sustainability market
By BRIANNA FRIES
We all know that the homebuilding industry is facing some harsh numbers and will be dealing with a less-than-ideal end to this year, and quite possibly a less-than-ideal beginning to 2019. Thankfully, while the numbers are not wholly positive, they do create some clear trends to follow that will help homebuilders in the coming months. However, we have to take a look at what we are dealing with first: mortgage rates are up, home prices are up, home building starts and construction are down, home stock is getting smaller and buyers are having a hard time getting homes they can afford.
Home building starts dropped by 5.3 percent, compared to earlier in 2018, with single- family homebuilding starts specifically falling by 0.9 percent. Similarly, building permits have fallen to their lowest point compared to the last year and a half. This drop is in response to rising mortgage interest rates, which went up to to 4.9 percent within the month of October, and home prices that never seem to stop rising. Fewer home building starts (creating a subsequently smaller housing market), and the high prices of homes and mortgage interest rates, have made the idea of home purchase unaffordable, if not utterly impossible, for first time homebuyers.
As a Millennial who is dreaming of buying her first home with her husband in the upcoming years, these statistics are worrisome. For a homebuilders and industry professionals, I would imagine the feeling is mutual if not magnified. Now that we have addressed the bad news, it’s time to discuss the good: the numbers tell us that affordability is the largest hurdle for homebuilders right now. However, the numbers have also shown that homebuilder confidence rose last month.
According to NAHB Chairman Randy Noel in a NAHB article published in mid-October, “Builders are motivated by a solid housing demand, fueled by a growing economy and a generational low for unemployment.” These factors, combined with favorable economic conditions and demographic tailwinds, are keeping builders confident and ready to feed a market need. It may be hard to buy or build a home right now but the fact remains that homes are needed. Confidence won’t solve a crisis, big or small. If we know that affordability is the main hurdle for now, we have to figure out ways to address the issue. For example, how can we make houses more affordable and, subsequently, worth the risk that comes with making the purchase of one worth it (because, let’s be honest, affordable or not, buying a house is a big commitment).
Here are a couple of ideas: Make homebuilding more efficient and affordable from beginning to end. If you start affordable, you often end affordable. According to Don Neff’s column on page 34, technology can come in handy in this effort: “The features and benefits of high-tech quality assurance methodologies can help locate, communicate and resolve construction issues in real time before they become bigger problems, saving a builder or general contractor and insurance carriers potentially millions of dollars in post-closing legal and remediation costs.” Add this to the fact that the prices of lumber have actually been declining over the past few months, and the price tag attached to new home construction can be less than previously thought. Go Green – In addition to advances in technology, we also have the “green” factor, which can save money for builders and buyers alike.
Building a green, energy efficient home also creates a multi-faceted benefit: reducing energy costs, increasing interest, and increasing value. It reduces energy costs because building a properly weatherized and sealed home means that a future resident won’t need to use the cooling or heating nearly as much since the home practically regulates itself. Those energy savings increases buyer interest since people are increasingly in the market for eco-friendly and energy efficient homes. This increase in interest translates to increased value (supply and demand), which is magnified if home is made with sustainable materials that can also reduce its final price.
Buy green materials, build using green methods, and create a green home, and you are more than likely to save green and make green at the same time. Be trendy – Last but not least, it is important to design well. No matter how sustainable a home is, it won’t sell well if it looks bad or doesn’t meet buyer wants. Some of the biggest trends homebuyers want include energy efficiency along with modern interior design, a plethora of natural light, smaller homes with more efficient storage, smart appliances etc. Utilizing these trends, and keeping an eye on what is coming next, will also help to increase interest in your smartly built home.
Brianna Fries is an Assistant Editor for Builder and Developer magazine. She can be reached at firstname.lastname@example.org