Taking Stock of What Matters

New housing data shows positive signs, but where does the industry go from here to address a changing market?

By ZACK JOHNSTON

With the constant barrage of contradicting financial news thrown into the atmosphere each day, it becomes more and more difficult to properly diagnose our ever-changing housing market. Between the clickbait and the politically motivated interpretations, homebuilding professionals need to be able to cut through the weeds and know the best way forward for the industry.

Many of the factors that will determine the trends of the coming decade are still being fleshed out, but the overall sentiment is one of confidence and optimism. A recent report from Reuters had a lot of data for builders to feel positive about.

“U.S. homebuilding surged to a 13-year high in December as activity increased across the board, suggesting the housing market recovery was back on track amid low mortgage rates, and could help support the longest economic expansion on record,” according to the report.

Things are certainly looking up. As industry leaders work to maintain this momentum, we can take advantage of this moment to look at what’s improving, and take stock of what still needs improvements.

The market has long been plagued by a lack of inventory, so reports like these are a good sign that we are on our way to reversing it. With a steady job market, low interest rates, and a rising economy, we may be witnessing the start of a whole new era of progress.

“The rise in construction, together with an increase in completions and the inventory of homes under construction, could ease a hous- ing shortage that has constrained sales over the last couple of years. Housing completions increased 5.1% to a rate of 1.277 million units in December,” the report goes on.

It’s undeniable that the industry is undergo- ing a transition, as is the country. The social and economic factors that shaped reality years ago no longer have the same impact, or have become irrelevant. As the housing market continues on a steady course in this new year, a focused and clear vision is what will help it avoid a catastrophic derail.

One can only hope we’ve learned from past mistakes and take the necessary steps to avoid any needless economic woes. The current upward trajectory we are on is in part thanks to cuts on interest rates from the Federal Reserve meant to encourage construction and homebuying. This practice helped stabilize the housing market and gave the economy a healthy jolt, but as Ben Casselman of The New York Times points out, it’s not the only thing the market needs.

“Housing isn’t the engine it once was. The sector is a smaller part of the economy than before the financial crisis, and a smaller share of Americans are homeowners. And with rates already low, it isn’t clear that a further cut by the Fed will do much for housing — if it low- ers mortgage rates at all,” Casselman writes.

In the wake of America’s housing crisis and subsequent rebuilding of the industry, it is crucial that we take this opportunity to really ask ourselves what works, and to not repeat sins of the past.

Increasing the inventory is certainly needed, but diversifying the inventory will be key
to growing the market in the coming years. Younger buyers have already begun claiming their portion of the housing market, with young Millennials and Generation Z following swiftly behind.

Now the only thing getting in the way of young people entering the housing market is, ironically, the housing market itself.

ince 2012, rises in home prices have far outpaced rises in wages, according to The New York Times. Student loan debt is still holding down a massive portion of would-be buyers, and it’s become increasingly harder to save for a down payment.

This is why diversification is so important. The market is still sorely lacking in affordable starter and move-up homes in some places that need them the most. Builders and land developers can be the answer to this problem by providing options for the whole range of buyers, and filling the affordability void in our overlooked communities.

And let’s not forget the generation that will play a major role. As expected, Baby Boomers are continuing to ditch the empty nests in favor of more modest, comfortable dwellings. This will only continue in the coming years, and industry leaders must be preparing for this generational shift in housing demands. Not only will there be a huge 55+ market in need of accommodating housing, it will leave an influx of existing properties on the market.

According to the Reuters report, single-family homebuilding jumped last month to it’s highest level since June 2007, and makes up the largest share of the market. And although multi-family housing starts also made a jump last month, multi-family construction permits fell 9.6 percent to a rate of 500,000 units.

Overall, signs point to progress, but some of the hairier details rightly have experts concerned. Growing the market is a high priority, but ensuring that it is working properly has to be the necessity. That means developers achieving the ideal equilibrium of density
and affordability for their respective markets and clientele. Now is time to be figuring how exactly to strike this balance.

Zack Johnston is the Assistant Editor of Builder and Developer Magazine. He can be reached at zack@builder.media.

Leave a Reply