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The Construction Cut with Taylor Rennick- 02/24/20

This week on The Construction Cut, Taylor dives into the latest confidence numbers from the NAHB, another week of Coronavirus news, and the latest trends coming from the real estate industry. Plus: could mortgage rates go even lower? 

  • Home Builder Confidence is on the Rise 
  • The Coronavirus continues to create instability in the market 
  • The Remodeling Industry is set to skyrocket in the next six years 
  • Six scenarios that could drive mortgage rates even lower 

Listen to the entire episode below on SoundCloud. 

 

Full Episode Transcription

Welcome back to the Construction Cut. This week we're rounding up reports from the NAHB on home builder confidence, tackling another week of Coronavirus news, and taking a look at the trends and developments expected in the real estate market.

It's Monday, February 24th, 2020. Let's dive in:

The remodeling industry is set to have a "b" in its total revenue within the next seven years. According to Tech Mag, the remodeling industry is expected to pull in a record 507 billion by 2026. Citing an anticipated CAGR of 4.5% for the next six years. CAGR, by the way, stands for compound annual growth rate. Three significant factors are said to be driving the growth in the industry: the surging prices of new homes, supportive finance options, and energy-efficiency programs brought on by modern technology.

Cost and availability of labor continue to plague the construction industry. According to a new survey by the NAHB, the most troubling issue pressing construction professionals was availability (and cost) of labor. Labor was a top-cited concern in 2019 and continues to be the #1 problem going into 2020. In 2011, the price and availability of work were reported as a problem by only 13% of builders. It's gone up every year since, topping out at 87% in 2019.

Cost and availability are, no doubt, the top concern of construction professionals. But its also worth noting the second most significant concern- the price of building materials. In 2011, 33% of builders reported high building material prices hindering their business- in 2019, that figure is up to 66%.

Looks like those builders will need to open up their pocketbooks. According to Bloomberg, US home building permits rose to their highest levels since March of 2007. More housing permits indicate planned construction, which should help mitigate the dwindling supply of inventory. Analysts are pointing to milder weather in areas that usually slow down production this time of year. Another fun stat- recent figures from the University of Michigan showed home-buying attitudes in February advanced to the highest level since 2017.

The Coronavirus has made its way to the most expensive housing market in the US. According to patch.com, median home sales in Los Angeles County have dropped 4% since December, a drop that economist Leslie Appleton-Young says is due in part to a rattled market, brought on primarily by the unease in China. "With interest rates on a declining trend again due to concerns about the impact of the coronavirus, motivated buyers will have an opportunity to stretch their purchasing power in the housing market," she said. "The economic outlook, however, is less clear than a month ago, before the outbreak of the disease, and we should expect market uncertainties to continue to linger on for the short term." The average home price in LA County last month- $617,520.

Last week I spoke more in-depth about the Coronavirus and its impact on the luxury housing market here in the US. In that episode, I mentioned a few other scenarios that could send mortgage rates even lower than what we've seen in the last year. These come from Logan Mohtashami, a columnist at Housing Wire, and I thought they were worth sharing. Granted, not all of these storylines are destined to change the market, but it's worth mentioning int the context of the market. Logan goes on to explain how negative headlines in the news can lead to stock market sell-offs- driving money into bonds. More cash in bonds means less in the ten-year-yield, and then, your mortgage rates go down. So if these negative stories end up playing out at the same time, you'll have a ripple across the entire market. We already covered the Coronavirus, but know that if the virus continues to spread, the long and short of it is, more money will come out of stocks. Delays coming from Boeing's latest debacle could also impact growth if the company continues to ground planes into Q3. Election headlines, data from the manufacturing industry, Brexit negotiations, the Chinese Trade War, and potential military conflicts in the Middle East or North Korea could also lead to instability in the market.

A new report released by Bright MLS is giving us a look at the trends and developments expected to impact the housing market this year. Noting how 2019 was a banner year, the report goes on to say that an improved job market is one of the most positive factors of the housing industry, but nearly half of respondents were worried about 2020 being an election year- suggesting that homeowners may very well stay put. The biggest negative going into 2020? Low inventory. Do I sound like a broken record yet? Another interesting stat? 80% of all real estate professionals surveyed stated that builders are not constructing enough affordable homes in the areas they serve. No surprise there. And for that first time, homebuyer? Things aren't looking great. The report cited four main challenges that first-time homebuyer's face:

Cost of the down payment
Lack of inventory
Affordability
Qualifying for a mortgage

Another big one? Student loan debt. Nearly half the realtors in this report stated that student loan debt is a barrier to entry for first-time homebuyers in their market. Because of these debts, millennials are waiting longer to buy a home, and having trouble qualifying for a mortgage in general.

I know what you're thinking. Taylor, is there anything good happening.. Like, at all? Yes- even though pernicious student loan debt is a real thing (feel free to check my Navient bill if you don't believe me), home builder confidence is high! See, I told you I could turn this around. The National Association of Home Builders' monthly confidence index dropped one point to 74 in February from 75 the month prior, just two points below December's figure, which represented the highest index reading since June 1999.

Interestingly enough, the NAHB also states high student loan debt as an obstacle to first-time homeownership. So while a large swath of potential home buyers is shut out of the market by virtue of going to college-- others are taking advantage of three-year low mortgage rates, propping up the housing market. And since inventory is so inadequate, they are turning to newly-built homes, keeping home builders in healthy demand.

Thanks for joining me this week, I appreciate everyone tuning in to Builder Funnel Radio. If you’re enjoying the podcast, feel free to leave us a 5-star review- well, me... Really you’re leaving me a five-star review- and it really does help! For more information about today’s show, including a link to the shows transcript and the resources I used to put the show together, tap or swipe over the cover art. See you next week.

 

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