The US housing sector suffered contruction declines nationwide amid the pandemic (AFP Photo/JUSTIN SULLIVAN)
Construction of new homes plunged just over 30 percent in April from the previous month, amid the widespread US lockdowns to prevent the spread of COVID-19, according to government data released Tuesday.
The collapse to just 897,000 units put the annual rate of housing starts 29.7 percent below the same month of 2019, the Commerce Department reported.
The declines were widespread across the country, with the Northeast taking the worst hit — a 44 percent drop in construction starts — while the Midwest saw a relatively small 15 percent decline.
Building of multifamily housing saw the most severe impact in most regions.
Meanwhile, permits for new construction, which in normal times is a sign of demand in the pipeline, fell 20.8 percent compared to March.
But with the ongoing coronavirus pandemic, these are hardly normal times.
“Due to recent events surrounding COVID-19, many governments and businesses are operating on a limited capacity or have ceased operations completely,” the Commerce Department said, adding that the data quality still meet publication standards.
Housing is a critical sector of the US economy and demand was high before the crisis, given low mortgage lending rates, and builders were struggling to keep up with demand while prices were moving higher.
Since the pandemic hit, the Federal Reserve has slashed the benchmark interest rate to zero, which could be expected to help support home buying. But with 30 million jobs lost to the pandemic — at least temporarily — the outlook remains uncertain.
Still, Ian Shepherdson of Pantheon Macroeconomics said, “Housing construction likely has hit bottom.”
“A steep drop in activity was inevitable given the lockdowns, but we think these numbers will mark the floor; May will be better, and June better still,” he said in an analysis, noting that mortgage applications had picked up, recovering more than half the pandemic-related declines.
The Mortgage Bankers Association’s latest Weekly Application Survey shows a 0.3% seasonally adjusted decline in loan application volume from the previous week. The Refinance index decreased by 1% from the previous week and was 225% higher than it was the same week one year ago. The Purchase Index increased 2% from one week earlier but was 31% lower than it was the same time a year ago. The MBA notes that the pandemic-related economic stoppage has caused some buyers and sellers to delay their decisions until there are signs of a turnaround. This has resulted in reduced buyer traffic, less inventory, and March existing-homes sales falling to their slowest annual pace in nearly a year. Most importantly, the economic stoppage has halted the momentum in the housing market generated by young, would-be homebuyers, mostly from the millennial generation, preventing them from entering the market.
With the federal government’s recent passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act, not only did qualifying individuals receive economic impact payments, i.e., stimulus checks, but small businesses were also extended emergency advances of up to $10,000 as part of the Small Business Administration’s economic injury grant. With these measures in place, expanding businesses and families’ balance sheets to accommodate for more real estate is less of a priority than keeping their existing assets afloat. The CARES act also provides options for mortgage forbearance. As can be seen from the above figure, year-over-year gains in refinancing skyrocketed in the middle of March and continued their upward trajectory towards the end of the second week of April. Year-over-year purchasing changes, however, slipped into negative territory for that period, posting a year-over-year decline of 31% in the latest week. The National Association of Realtors cites that lender credit standards such as higher down payments and credit scores would likely deter home sales’ bounce when the pandemic is over. Before the outbreak, foreclosure rates were at historic lows.
The U.S. economy reported a plummet of 701,000 nonfarm payrolls in the early part of March, according to new data posted Friday by the U.S. Bureau of Labor Statistics.
This marked the first decline in payrolls since September 2010. As a result, the unemployment rate increased by 0.9 percentage point to 4.4%, the greatest over-the-month increase since January 1975 and the highest unemployment level since August 2017.
The number of unemployed persons spiked by 1.4 million to 7.1 million in March, with the BLS citing the COVID-19 crisis for the statistical mayhem. The number of unemployed persons who reported being on temporary layoff more than doubled in March to 1.8 million while the number of permanent job losers increased by 177,000 to 1.5 million.
It’s important to note that this BLS report does not take the entire month of March into account. And recent data shows that nearly 10 million filed for unemployment in the last few weeks, meaning the BLS figure will rise significantly in next month’s report.
“This report reflects the initial impact on U.S. jobs of the public health measures being taken to contain the coronavirus,” Secretary of Labor Eugene Scalia said in a statement. “It should be noted the report’s surveys only reference the week and pay periods that include March 12; we know that our report next month will show more extensive job losses, based on the high number of state unemployment claims reported yesterday and the week before.”
The leisure and hospitality industries were particularly hard hit with a loss of 459,000 jobs, and other industries experiencing acute declines included health care and social assistance, professional and business services, retail trade and construction.
Within the mortgage and housing industry, there was a grim acknowledgment of an unprecedented economic crisis – yet several thought leaders tried to find bright spots in the dismal data.
Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association, noted the report “showed almost an additional 1.5 million households now working part-time when they would rather have full-time hours. The decline in the participation rate already indicates that some workers are stepping back from even looking for a job as the pandemic crisis continues.”
Fratantoni predicted next month’s employment numbers will record higher levels of job losses, which would lead to “a drop in demand for purchase mortgages,” although refinancing activity is expected to remain vibrant. He also noted one small bright spot in the new data regarding home construction.
“Although construction employment declined last month, there was a small increase in residential construction, with the decline driven by non-residential builders,” he continued. “When housing demand recovers later this year, we will once again be facing a supply shortage, so it is good to see that homebuilders are continuing to hire.”
Lawrence Yun, chief economist at the National Association of Realtors, also acknowledged that the residential side of the construction industry was stronger than the commercial property side, adding that residential construction jobs “were steady and higher by 27,000 from a year ago for actual building construction and higher by 44,000 among general contractors. We had a housing shortage before going into the crisis and home builders were gearing up to relieve the inventory tightness.”
Yun also maintained a sense of hopefulness for the newly out-of-work, explaining that “the enhanced unemployment insurance checks to make up for a good portion of lost income” and the post-pandemic weeks will be framed by “spending power ready to be unleashed once the all-clear signal is declared.”
Anthony Casa, chairman of the Association of Independent Mortgage Experts, warned that the U.S. economy in general and housing in particular could withstand continued waves of millions filing for unemployment benefits, with small businesses facing an existential crisis because most companies in that sector “do not have the money to shut down for multiple months.” And while Casa praised the mortgage industry for remaining “very strong” thanks to historically low rates, he expressed concern over the real estate industry.
“The longer this goes on, the bigger the impact on them,” he said. “Real estate is in for a tough year if home values decline.”
What do Americans do when so few new homes are being built? Remodel, according to the latest report for Buildfax.
According to the housing data and analytics company, 2019 marked the lowest rate of mobility in the U.S. since the metric was first tracked in 1947. Only 9.8% of Americans moved last year. Though this marks a new low, it’s not terribly far off from the only 10.1% who moved between 2017 and 2018.
Buildfax’s report pointed to new construction as part of the issue. Namely, the lack thereof. While single-family housing authorizations increased 4.82% year over year in 2019, the year did not close out on a strong note. According to the report, authorizations decreased by 2.61% from November to December 2019. Local Motion is a family run business, and we understand what families need when they long distance movers. Our administrative staff stays connected to you on your move day, ensuring every phase of your move is exemplary.
“The U.S. is facing a housing shortage, in part due to the slowdown in housing construction last year. This has been felt in both large metros and smaller cities across the country,” Buildfax Managing Director Jonathan Kanarek said. “Now, even though the economy is showing strong growth and mortgage rates remain low, those who want to buy a new home are experiencing challenges with increased competition on a tight housing supply.”
Instead, the report states, people are remodeling. Buildfax reports that existing maintenance volume and spending increased 9.47% and 16.26% year over year, respectively. In the past, Buildfax has often referred to home maintenance activity as a recession indicator. As this activity increases, Buildfax asserts that recession probability lowers, and vice versa.
That said, in its December Healthy Housing Report, Buildfax states that “maintenance and remodeling increased substantially, potentially fueled by homeowners who feel unable to buy a new home and therefore invest in their existing property.”
As many economists have pointed out, U.S. homeowners have been staying put for a while now. The concept of “aging in place” is not a new one. In August of 2018, AARP revealed that almost 90% of homeowners approaching retirement want to stay in their homes as they age.
And for the most part, they are.
Last February, Freddie Macreleased a study showing that seniors born after 1931 are staying in their homes longer than previous generations. According to the report, this generation held 1.6 million houses back from the market in 2018.
“Americans are staying in their homes longer because the house they have is perfectly suitable for their family’s need,” he writes. “For more than four decades, home sizes have been getting bigger while family size has been in decline.”
Prices paid for goods used in residential construction decreased by 1.1% in June (not seasonally adjusted) according to the latest Producer Price Index (PPI) released by the Bureau of Labor Statistics. The decline broke a four-month trend of increases and was only the fifth month over the past two years in which prices fell.
Over the past 12 months, building materials prices have decreased 1.6%, just the fifth June year-over-year decrease since 2000. The decline is a sharp reversal of June 2017 to June 2018, during which prices increased 8.8%.
The PPI report shows that softwood lumber prices decreased (-1.7%, not seasonally adjusted) in June—the index’s third consecutive monthly decline. Prices remain at their lowest level since February 2017. While weekly prices have been volatile since mid-May according to Random Lengths, the difference between the average prices of softwood lumber in May and June mirrored the PPI data (-1.8% v. -1.7%).
One of the special indexes published by BLS tracks lumber and plywood in one category. Similar to softwood lumber, the lumber and plywood index fell 2.3%. Prices paid for softwood lumber and lumber and plywood have decreased 23.1% and 17.6%, respectively, since June 2018.
The price index for gypsum products continued its downward trend in June, declining 1.9%. In the last 10 months, gypsum prices have only increased twice.
Prices have declined by 6.2% and 10.8% since January 2019 and August 2018, respectively.
Ready-mix concrete prices increased 1.2% in June and remain relatively volatile. Prices have risen by more than 1.0% in two of the past three months, something that has only happened in 18 of the previous 231 months.
The housing market won’t recover much in the second half of 2019, says Capital Economics.
Mortgage interest rates have fallen this year, but that hasn’t spurred much action in the housing market, and things are unlikely to turn around for the remainder of the year as concerns about the economy continue to grow, the economists say.
“The fact interest rates are declining because of concerns that the economy is slowing argues against a strong rise in home purchase demand,” Capital Economics writes in a recent report. “That is reflected in measures of buyer sentiment. The decline in interest rates earlier this year failed to provide much of a boost to the share of households saying now is a good time to buy.”
That said, the report did indicate that rental demand will be solid thanks to strong wage growth and subdued home sales. And, the drop in rates has helped spur refinance activity, with applications jumping in the first half of June and signals indicating the likelihood of an upward trend for refis.
But purchase demand is less sensitive to changes in mortgage rates, the economists say, and home sales have therefore seen less of a lift from the drop in financing costs.
Also, the drop in rates was somewhat offset by tighter lender standards, the report says, including a recent pullback from the Federal Housing Administration that may make it harder for some riskier borrowers to qualify.
But on the bright side, homes are still affordable, the economists say.
“The fall in mortgage interest rates, slower house price gains and the rise in earnings growth have led to a drop in mortgage payments as a share of income,” the report says. “And, based on our forecasts for those variables, the payment burden is set to stay at around 16% over the next couple years, low by past standards.”
But the housing market is plagued by a lack of inventory, and this will prevent any meaningful rise in existing home sales, the report predicts.
“While the number of existing homes for sale has seen some improvement since reaching a record low at the end of 2017, at 1.8 million in May market conditions are still tight,” the report says. “And with interest rates falling back, we doubt existing inventory levels will see much of an improvement over the next couple of years.”
Mortgage rates have steadily declined with the 30-year fixed-rate bottoming out to 3.82 percent, its lowest level since September 2017, according to the latest figures from Freddie Mac.
Digital Risk co-founder Jeff Taylor told FOX Business’ Neil Cavuto that now is the time for new home buyers to take advantage of the bigger inventory on the market.
“If you’re looking to get into the housing market, i.e., you don’t have a house right now, this is literally the perfect time,” he during an interview on Monday. “Interest rates are about a one percentage point less than it was this time last year … that’s a 10 percent savings on a 30-year mortgage a month.”B
The Federal Reservemight cut the federal funds rate twice this year, a move that could cause the 30-year fixed rate to fall even lower.
“If you get two rate cuts at 50 and if you get to 75, yeah, I think you can be back down to three and a quarter [percent], Taylor said.C
Taylor adds that the lower interest rates allow consumers to reach a little deeper into their pockets and “afford more of a house.”
“People are feeling better about their jobs right now and they’ve been saving. It’s a great time to finally to get into the housing market and make a purchase,” he said.
According to a estimates from the U.S. Housing and Urban Development and Commerce Department, single-family starts continued to show weakness in March, despite the recent stabilization in the NAHB/Wells Fargo Housing Market Index (HMI). After downward revisions made to the February data, single-family starts were down 0.4% to a 785,000 seasonally adjusted annual pace in March, the lowest such rate since September 2016.
On a year-to-date basis, single-family construction is 5.3% lower than the first quarter of 2018. NAHB’s forecast, and the forward-looking HMI suggest that future data will show stabilization followed by slight gains due to recent declines in mortgage interest rates. Why not you check this out for more information about construction. However, single-family permits continued to be soft in March, declining 1.1% for the month to a 808,000 annual pace, the lowest since August 2017. Most of this is because many of the constructions that start of end up being unsuccessful, if you want to avoid this then consider reading these tool box topics to learn what you can use to successfully manage a construction.
On a regional and year-to-date basis, single-family starts are down 21% in the housing affordability challenged West, 20% in the Midwest, 2% in the Northeast and up 5% in the South.
Multifamily starts were unchanged from February to March at a 354,000 annual rate. However, comparing the first quarter of 2019 to the first quarter of 2018 shows a 19% decline for 5+ unit production.
Recent production declines are clear in the current estimates of units under production. As of March 2019, there were 531,000 single-family homes under construction. While this is 4.5% higher than a year ago, it is down from the 543,00 peak count from January 2019. Similarly, there are currently 595,000 apartments under construction, which is more than 3% lower than a year ago and down from the peak count of 625,000 in February 2017. The combination of these declines in current construction activity are seen clearly in the graph below, with declines for total housing under construction for all of 2019.
The good news for some homeowners in one town: The average assessed value of a house in your neighborhood has skyrocketed by more than eightfold, climbing from about $212,000 to $1.8 million.
Now for the bad news: Your property taxes are going up as well, to just over $29,000 from an average of about $16,500 — and you’ll only be able to deduct the first $10,000 on your taxes.
That’s the situation facing some homeowners in Jersey City, New Jersey, as the rapidly gentrifying city performs its first round of reassessments since 1988.
The traditionally blue collar town, which sits directly across the Hudson River from New York City, is an extreme example, but it isn’t alone.
Property taxes, for instance, are up 38 percent year-over-year in Clark County, Nevada – home to Las Vegas – raising the average 2017 tax bill on a single family home to $2,445 from $1,774, according to ATTOM Data Solutions, a provider of real estate data.
Home prices there have risen by 100 percent over the last five years, according to ATTOM.
RebeccaAng | Getty Images
Las Vegas, Nevada
Meanwhile, homeowners in Williamson County, Texas — just outside of Austin — experienced a 15 percent tax increase last year. Owners of single family homes paid an average of $6,697 in property taxes, up from $5,837, according to ATTOM.
Over the last five years, home prices there have risen by 80 percent.
“The story is that people are moving to these markets, and they’re experiencing rapid home price appreciation,” said Daren Blomquist, senior vice president at ATTOM.
“It doesn’t just affect the people who are willing to pay for the homes and the property taxes,” he said. “There is a ripple effect on neighbors who might have been there for 20 years, and their taxes go up as well.”
Here’s how to contend with skyrocketing property taxes.
Monthly crunch
For Keren Vered, a Jersey City resident, community activist and fashion industry consultant, the $18,000 tax hike on her townhouse translates to an additional outlay of about $1,500 a month.
That’s on top of the $10,000 she already paid annually in property taxes prior to the city’s reassessment. Then there are other regular monthly costs she’ll need to weigh.
“For me, it’s not just the $1,500 a month, but the private school part of it, too,” said the mother of two, ages 2 and 4. “Year over year, plus private school, I worry about the long-term sustainability of it.”
The family has a lever available to help contend with the tax increase: They already rent out one floor of their three-story townhouse. Even so, tenants can only handle so much of an increase in their rent.
“I’m trying to get the city to where other families like mine would want it to be,” said Vered. “Rents going up create a barrier to entry.”
Tax strategies
Homeowners like Vered face an additional difficulty: Prior to 2018, they were able to claim all of their property tax liability if they itemized on their taxes.
With the Tax Cuts and Jobs Act now in place, residents can now only claim up to $10,000 in state and local tax deductions.
Residents in New York, New Jersey and California are among the hardest hit.
SALT in the wound. The $10,000 cap on state and local taxes are a blow to just a handful of states.
Plus, fewer filers are expected to itemize in 2018 because the new tax law has doubled the standard deduction to $24,000 for a married couple filing jointly. Under the previous law, about 49 million taxpayers — roughly 3 in 10 individuals — filed itemized returns, according to the Urban-Brookings Tax Policy Center.
Accountants point to a couple of strategies homeowners facing big tax hikes can take.
Home office break
An entrepreneur working from home can take a home office deduction in one of two ways. First, there’s the “safe harbor” method in which you deduct $5 per square foot for an office that’s up to 300 square feet.
You can also calculate your deduction based on your actual expenses, figuring out the percentage of your home used for the business.
Loic Lagarde | Getty Images
This method considers the percentage of home costs, including real estate taxes, attributable to the office, according to S. Andrew Smith, a CPA and principal at Baker Newman Noyes in Portland, Maine.
The “actual expense” method also deducts for depreciation, and you will pay taxes on that when you sell your home, Smith warned.
You do not need to itemize on your taxes to grab the home office deduction, but you do need to show a profit from a home business in order to take it.
“You’ll pay the property tax one way or the other, but at least you have some rental income to help pay for it,” said Tim Steffen, director of advanced planning for R.W. Baird’s private wealth management group in Milwaukee.
High-tax states on ‘SALT’ diet after tax reform
As a landlord and a small business, if you become a pass-through entity— an LLC or an S-corporation — you may be eligible for a 20 percent deduction for qualified business income.
If you rent out your home, be sure to track your expenses and talk to your insurance agent. “If you use it as a rental property, even partially, your insurance coverage needs will change,” said Smith.
Report your rental income or loss on Schedule E when you file your taxes.
On the other hand, if your rapidly appreciating property is in a prime destination, consider that you won’t have to claim the rental income if you rent your space for less than 14 days over the year.
Fight back
Finally, if you disagree with your municipality’s assessment on your home, you can contest the findings.
Get to know your city’s appeal’s process, which can be deadline sensitive and will vary from one town to the next.
Expect to gather evidence of your home’s market value, too.
You can hire an appraiser to provide your city’s tax assessor with reports and comparable property values to back up your findings, said Brigid D’Souza, a CPA and founder of Civic Parent, a website that follows property tax developments in Jersey City.
The national average cost of hiring an appraiser is about $329, according to HomeAdvisor, a home improvement website.
You can also hire an attorney on a contingency basis to represent you through the appeals process, which typically costs one-third to one-half of your first year’s tax savings, D’Souza said.
While a licensed realtor can’t give you an appraisal, he or she can provide you with comparative sales which can act as evidence of market value, said D’Souza.
A toy-lover’s paradise nestled on 25 idyllic acres at the North Pole – perfect for spirited reindeer games. The home, constructed in the 1800s of gorgeous old-growth timber logged on site, is steeped in Old World charm but offers modern-day amenities, thanks to a 2013 renovation.
A welcoming entryway leads to the living room with a floor-to-ceiling river rock fireplace for roasting chestnuts. The gourmet kitchen is a baker’s dream, boasting an oven with 12 different cookie settings...More
