In Interviews, News

home-builder-confidence

Still going strong.

Actually, it’s more like still thriving.

Of course, we’re talking about the housing market across the country.

A recent story by Fox Business said that U.S. home builder confidence hits nine-month high.

So those who continue to push the “housing bubble is about to burst …” narrative, again, will have to wait at least a little while longer.

The story said that confidence could be a sign the housing market is picking up steam after a “sluggish winter.”

The Nationals Association of Home Builders’ confidence index rose five points to a reading of 59 in June, according to the Fox Business story. It added that a reading of 50 means most builders generally hold a favorable view of the market for newly built, single-family homes.

According to the Wall Street Journal, economists surveyed expected to June to hit a 56 reading.

The Fox Business story added that measures of current and future sales are at their highest levels since the last quarter of 2005, according to NAHB Chief Economist David Crowe said.

So what does this mean for real estate investors across the country?

We reached out to experts across the U.S. and this is what they had to say.

 

David Sims is an independent analyst and investor, who has been following the Government Sponsored Entities for several years, as well as some other small mortgage finance companies.

The current upswing in home prices is due to a draw-down in available inventory. This is due to several factors, notably record low interest rates and a huge reduction in builder production from 2008 to 2015. During that period, builders constructed about half of the number of homes needed to keep up with demand. This year, Fannie Mae estimated that 1.15 million units will be produced, but the economy needs production of 1.3 million to keep up with housing turnover and population growth. Yesterday’s building permits forecast shows that we may actually reach 1.275 million housing starts this year, which will be the first year that builders nearly meet long-term demand expectations since the financial crisis.

Meanwhile, boomerang buyers, who owned a home before the financial crisis, but went into foreclosure, will be returning to the market. A foreclosure stays on your credit history for 7 years. So, buyers that foreclosed in 2008 will soon qualify to purchase a mortgage. In 2016, even more of these buyers will return.

Millennials are a third leg to this housing growth story. Many of these people have finally found job stability with the improving market. The birth rate has been depressed for several years, along with household formation. This should be a source of pent-up demand for housing.

 

Business partners Nino Cutrufello and Marcus Toconita of Philadelphia-based developing and building company, Callahan Ward.

Nino: Our company,Callahan Ward, builds 10-to-15 high end single family homes near downtown Philadelphia per year. Peaking homebuilder confidence means more competition for a dwindling supply of land in walkable, desirable neighborhoods close to Center City. It means a move to higher density home types and perhaps a shift away from our bread and butter for-sale homes to more rental properties in an attempt to not become overinvested in building a single product type. I suspect these trends similar to national trends in other markets as well. With far too few homes being built at the moment to meet demand, a lack of buildable lots in desirable locations is likely one of the key factors to holding back supply.

Marcus: I don’t foresee sales price declines in the near future. Perhaps a flattening out of price appreciation in some of the more desirable neighbors, but certainly nothing declining in price over the next few years. Anecdotally, the demand for homes in the areas in which we are building appears to be real, and much of it appears to be driven by owner occupants wanting to move into the city for the first time, buy in the city for the first time, or purchase a slightly larger home with parking that cannot be had a little closer to the downtown.  In Philadelphia, buyers of new construction homes are also taking advantage of a 10 year tax abatement program. This means that someone who purchases a new construction home only pays taxes on the vacant lot that was there before the home was built. This could result in an annual real estate tax of as low as $50 per year for the first 10 years of homeownership, depending on the assessment of the land upon which the home was built. (Incidentally, that $50 per year figure is a real number. It is the amount our company currently pays for a rental duplex we recently built in an up and coming area of the city).

 

Patty Brockman, principal broker in Portland

In Portland’s market, there is almost no inventory of residential properties to purchase or rent. Based on our projected increase of population in the next 20 years, we are in desperate need of housing, and that need is only going to grow,” said Patty Brockman, Principal Broker at Windermere Real Estate in Portland, Oregon. “The inventory of available homes hasn’t been this low since 2005 and that means that everything is selling for above asking price. Across Oregon and much of the West Coast, the inventory is expected to remain low alongside the the huge influx of people coming here in the next 15 to 20 years. This is evident across the state, and for the past 2 years in a row, Oregon had the highest amount of people moving in and lowest amount of people moving out as compared to other states.

What’s evident in this market is that the investors are now in Oregon, and they are buying competitively,” said Brockman. “One reason for this, which has been seen in other states, is that that the change in marijuana laws means that there are huge warehouses, storefronts and growhouses that have been purchased for the growth and distribution. And then there is an influx of people moving into the state. This is in anticipation of legalization on July 1st, and states like Washington and Colorado have seen massive investment in this industry in terms of space. Rent is still a notable reason to invest as well. We’ve all heard it before, but many millenials and younger people still aren’t buying although the situation is clear: rent has increased at 12% over the last year, and there is virtually no vacancy rate,” she said. “It’s still cheaper to own than it is to rent, so most investors will see a return on investment immediately. On top of this, we’re seeing low interest rates, higher appreciation on homes, and historically low inventory rates. The forecasts project this to keep increasing, so it is definitely the time to buy, especially in growing cities like Portland, Seattle, Denver and San Francisco.

 

Brett O’Daniell, Vice President of Enterprise Home Loans, based in St. Louis.

We are definitely seeing an influx in mortgage applications for customers choosing to build new construction. This has been one of the best years for new home building in our area since the housing crisis hit in the late 2000s. While the activity is great for the local St. Louis housing market, overall home values in some new construction subdivisions do not necessarily benefit from it. Builders are very competitive on their home prices and we are finding many times this negatively effects the sales prices of nearby existing homes. We also have found existing home sales in subdivisions where building stalled before the housing collapse are still struggling to recover their value.

 

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