Will Supply-Chain Problems Affect Housing Affordability?

 

Although the hot market and buyer demand have pushed up home prices, the market still shows steady housing affordability. Even though home prices have risen, they are offset by the record low mortgage rates. According to reports, the housing market is not all smooth sailing. The ongoing supply-chain problems around the world have disrupted new construction and renovations.

The National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI) reported that 56.6% of both new and existing homes that were sold between July 2021 and September 2021 were affordable for U.S. families earning a median income of $79,900. This is the lowest affordability level since the first quarter of 2012!

The HOI also revealed that the U.S. national median home price rose to a record $355,000 in the third quarter. This is a rise of $5,000 from the second quarter of 2021 and a $35,000 increase from the first quarter of 2021. Buyers did not feel the rise because the average mortgage rates dropped by 14 basis points to 2.95% at the same time.

This is good news but there are some setbacks to the market. It has been hard to get materials and product is increasing in price at a fast pace.

“Persistent building material supply chain bottlenecks and tariffs on Canadian lumber and Chinese steel and aluminum continue to place upward pressure on construction costs and home prices,” said NAHB Chairman Chuck Fowke. “Policymakers must fix supply chain vulnerabilities that are disrupting and delaying construction projects and hurting housing affordability.”

“Interest rates are anticipated to gradually rise in the coming months as the Fed begins to taper its monthly bond and mortgage-backed securities purchases,” said NAHB Chief Economist Robert Dietz. “To keep affordability problems from worsening in the future, policymakers need to tackle supply-chain challenges that are hindering new home production. Helping builders boost output will also slow the rapid rise in home prices that has occurred over the past year.”

The five most affordable housing markets around the country currently are Lansing-East Lansing, MI, Pittsburgh, PA, Indianapolis-Carmel-Anderson, IN, Scranton-Wilkers-Barre-Hazleton, PA and Harrisburg-Carlisle, PA. The five least affordable major housing markets are Los Angeles-Long Beach-Glendale, CA, Anaheim-Santa Ana-Irvine, CA/San Francisco-Redwood City-South San Francisco, CA tied for second, San Diego-Carlsbad, CA and Oxnard-Thousand Oaks-Ventura, CA.

For the small housing markets, the five most affordable are Davenport-Moline-Rock Island, IA-ILL, Monroe, MI, Sierra Vista-Douglas, AZ, Fairbanks, AL and Wheeling, WV-OH. The least affordable small housing are Corvallis, OR, Salinas, CA, Napa, CA, Santa-Cruz-Watsonville, CA and San Luis Obispo-Paso Robles-Arroyo Grande, CA.

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Suburban and Exubran Communities See The Fastest Home Building Activity

 

The pandemic has not only changed buyers' perspectives on what they want in a home but also where they want their home to be located. More and more buyers are searching in the suburbs away from crowded urban areas. Surprisingly the multifamily sector is seeing more new home starts in the suburbs and lower-cost markets.

According to the NAHB's current Home Building Geography Index (HBGI) multifamily construction saw double-digit percentage gains in suburban areas in the second quarter of 2021. Large metro areas saw a decline in multifamily new starts. Multifamily residential construction rose 14.3% in small metro urban cores and 25.5% in small metro suburban areas while large metro core areas saw a 0.5% decline.

“The trend of construction shifting from high-density metro areas to more affordable regions, which accelerated at the beginning of the pandemic early last year, appears to be continuing,” said NAHB Chairman Chuck Fowke. “Lower land and labor costs, and lower regulatory burdens in suburban and exurban markets make it more appealing to build in these communities. And workers are increasingly flocking to these areas due to expanded teleworking practices and lower housing costs.”

If you are in the market to purchase a home, now is the time. Get in touch with a Realtor in your local community who can help you with the process.

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A Positive Employment Report for August

The NAHB Eye on Housing reported an increase in nonfarm payroll employment from July to August this year. Nonfarm payroll employment increased to 31 states in August with 235,000. This was at a slower rate than seen in July with an increase of 1,053,000.

August saw a strong increase on a month-over-month basis in California where 104,300 jobs were created, in Texas 39,300 and New York 23,500 were created. Nineteen of the states and the District of Columbia saw a decline with a loss of 64,100 jobs.

Out of the 48 states which reported construction sector job information, 24 of those states saw an increase in both residential and non-residential construction jobs. Colorado, South Dakota and Utah saw no changes while Nevada added 3,000 construction jobs. There was a 4.4% increase in New Hampshire but a 3.7% in Kansas between July and August.

The construction sector jobs also saw an increase of 2.7% by 193,000 jobs on a year-over-year basis. California again came in at the top with 35,900 construction sector jobs while New York lost the most at 11,700 jobs. In percentage comparisons, Rhode Island had the highest growth at 13.9 which Wyoming at the worst at a decline of 7.7%.

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2021 Sees a Record High in Private Residential Spending

The total private residential construction spending is 21% higher than reported a year ago. The National Association of Home Builders (NAHB) analysis of Census Construction Spending data reported a 2.5% rise in total private residential construction spending in January. January saw a seasonally adjusted annual rate of $713 billion making this a record high.

The pandemic has caused many of us to spend more time at home. The gains were stemmed from ” strong growth of spending on single-family and improvements.” In January, the data shows that single-family construction hit a $376.2 billion annual pace which was up by 3%. There was also a 2.3% increase in spending on remodeling, major replacements and additions.

Although the majority of the surge in spending was in homebuilding, there was also a rise in public and private non-housing-related construction.

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Perks in the Housing Market For Present-Day Buyers and Sellers

The current housing market offers perfect opportunities for both buying and selling a home. In today's

market, there are a couple of perks for both home buyers and sellers that are hardly ever available.

This is a perfect time to purchase a home because of the historic low mortgage rates. The average mortgage interest rate has hit an all-time low. In fact, it is the lowest in the history of the Freddie Mac survey which dates back to 1971. Today's buyers can actually obtain a mortgage rate lower than the past two generations of homebuyers.

“Purchasing power rose 10% year-over-year…With interest rates hitting record lows, buyers were able to afford $32,000 “more house” as of July 23 than they could the year before with the same monthly payment,” according to the National Mortgage News.

Buyers will not only save money on a home, but they will have the opportunity to get more home for the money. This is especially appealing with today's pandemic pushing work from home. Homeowners are re-evaluating the amount of space they need in a home.

As for current sellers in the market, the low inventory has definitely been an advantage. According to the National Association of Realtors (NAR) the inventory of homes coming into the market continues to decline.  Even before the pandemic hit, the inventory was low. In today's market, houses are selling faster than they are being listed.

Bidding wars are the norm now. The fuel of low mortgage rates and low inventory is pushing buyers into bidding wars.

“Home prices rose during the lockdown and could rise even further due to heavy buyer competition and a significant shortage of supply,” says Lawrence Yun, Chief Economist for NAR.

If you are in the market for a home or want to sell your current home, now is the time. Contact a Realtor in your area who can help you through the process.

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More 2021 Buyers Want a Newly-Built Home

 The National Association of Home Builders' Housing Trends Report for the final quarter of 2020 shows a dramatic increase in buyers' interest in new construction homes. The report revealed that 41% of prospective buyers were looking for a newly-built home which is more than twice the percentage reported in 2019.

The NAHB Economics team researches and produces the Housing Trends Report each quarter. The teamsurveys and measures prospective home buyers’ perceptions about the availability and affordability of homes for-sale in their markets. The HTR is produced quarterly to track changes in buyers’ perceptions over time. All data are derived from national polls of representative samples of American adults conducted for NAHB by Morning Consult.

According to the report, Q419 looks very different from Q420 when it comes to the type of home buyers are looking for. In 2019 40% of homebuyers wanted an existing home, this decreased to 30% in 2020. Those buyers who would purchase a new or existing home fell from 41% in 2019 to 29% in 2020. For new homes in 2019, only 19% of buyers said they would just purchase a new construction home while in 2020 buyers who saught only new construction rose to 41%.

As far as the data broken down by generations, 50% of millennials are looking for a new construction build while 50% of baby boomers prefer to purchase an existing home. Out of the Gen X buyers, 48% prefer a new construction home while 38% of Gen Z buyers want to purchase an existing home.

The report also shows a difference in preferences in each region of the country. Most potential buyers in the Northeast (53%) and the West (51%) are looking for a new build. In the South only 33% preferred a new construction home and in the Midwest only 24%.

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