Health of Housing Market Sectors at the End of Q2

 
Buyers are flocking to metro areas where prospect for employment is high
 
As 2017’s third quarter approaches its end, the home building market continues to be plagued by the same problems. New home sales for single-family homes fell 9.4 percent in July, falling to a seven-month low. However, June’s sales were revised, adding an extra 20,000 units to create a total of 630,000, and revised May sales data were stronger than originally reported. At the risk of sounding like a broken record, lack of land (which is consequently driving up home prices), lack of available labor, and now a lumber tariff continue to hinder the housing market’s full recovery.

The NAHB isn’t worried just yet, though. They recently reported that year-to-date growth shows that new home sales continue to trend upward at a steady pace over the longer term, according to NAHB Senior Economist Michael Neal. Single-family, multi-family, and Active Adult markets all seem to be showcasing their resiliency across the nation, with a myriad of other market segments also doing well.

Builder confidence remains solid and the US economy is strong, with Freddie mac reporting an interest rate for a 30-year fixed-rate mortgage averaging to 3.97 percent in July 2017, an increase from July 2016’s 3.44 mortgage rate. Although the single-family market is experiencing its lowest sales reading since December 2016, the good news is that year-to-date new home sales are actually 9.2 percent above their previous level, a great sign for the home building industry.

These five booming markets have many similarities that made them a desirable place for people to live.

“The overall strengthening of the single-family sector is consistent with solid builder confidence in the market,” said Granger MacDonald, chairman of the NAHB and a home builder and developer from Kerrville, Texas. “The sector should continue to firm as the job market and economy grow and more consumers enter the housing market.”

A recent Q2 2017 Pre-Mover Housing Index report from ATTOM Data Solutions (a curator of the nation’s largest multi-sourced property database) depicted markets with the highest pre-mover indices during the second quarter. The top five markets were Colorado Springs, Colo., Chicago, Ill., Washington D.C., Reno, Nev., and Lexington, Ky. These five booming markets have many similarities that made them a desirable place for people to live.

“Markets with a healthy mix of access to good jobs and relatively affordable housing attracted the most interest from pre-movers in the second quarter, a harbinger of strong home sales activity in the third quarter,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Meanwhile in some of the nation’s hottest housing markets, there was more pre-mover interest in outlying counties further away from jobs but with more affordable homes to purchase.”

At the end of August, NAHB released the Multifamily Production Index (MPI), which indicated an eight-point-gain to 56 points in the second quarter. The index measures builder and developer sentiment in regards the to apartment and condo market and is scaled in such a way that a reading above 50 signals improvement in the industry. Steven E. Lawson, president of The Lawson Companies and vice chairman of NAHB’s Multifamily Council said the index score may be due to the high demand for multifamily developments that many parts of the country are experiencing now. “However, developers need to be careful to manage costs as prices of land, labor, and some materials continue to rise,” he warned.

The MPI is a composite of three elements in the multifamily market that includes construction of low-rent units, market-rate rentals, and for-sale units, also called condos. All three components increased in the second quarter with both types of rentals rising to 53 points for lowrent and 60 for market-rate, while for-sale units shot from 14 points to 57. This is the highest the for-sale index has been since 2005.

“A return to a positive trend in the MPI is consistent with positive builder sentiment in other segments of the housing industry,” said NAHB Chief Economist Robert Dietz. “Multifamily demand remains solid even as apartment construction comes off cycle highs as the multifamily market seeks a balance between supply and demand.”

The 55+ sector also saw improvement in the second quarter. NAHB reported U.S. home builder confidence in the single-family 55+ market rose 11 points from the previous quarter, reaching 66 on the index. Expectations of sales for the next six months, present sales, and traffic of prospective buyers are up in both segments of the 55+ market, which is broken into single-family and multi-family. “We are seeing strong demand in the 55+ housing sector due to favorable market conditions, such as record highs in the stock market and rising home prices,” said Dietz. “This quarter’s reading is in line with our forecast, as we expect to see continued gradual gains in 2017.”

Builders and developers should cater to the specific needs of the 55+ demographic in their housing designs in order to capitalize on this growing demand.

Sergio Flores is an Editor at Builder and Developer magazine. He may be reached at sergio@penpubinc.com.

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