Existing-Home Sales Up but Constrained

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Existing-home sales rose in April but remain below underlying demand because of limited inventory and tight credit, according to the National Association of Realtors.  All regions are showing strong price gains from a year ago.

Total existing-home sales, which are completed transactions that include single-family homes, town-homes, condominiums and co-ops, increase 0.6 percent in April.  Resale activity is 9.7 percent above April 2012.

Distressed homes – foreclosures and short sales – accounted for 18 percent of April sales, down from 21 percent in March and 28 percent in April 2012.  Eleven percent of April sales were foreclosures, and 7 percent were short sales.  Foreclosures sold for an average discount of 16 percent below market value in April, while short sales were discounted 14 percent.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 3.45 percent in April from 3.57 percent in March; it was 3.91 percent in April 2012.

The median time on market for all homes was 46 days in April, down sharply from 62 days in March, and 45 percent faster than the 83 days on market in April 2012.

Regionally, existing-home sales in the Northeast rose 1.6 percent to an annual rate of 640,000 in April and are 4.9 percent above April 2012.  The median price in the Northeast was $245,100, up 5.1 percent from a year ago.

Existing-home sales in the Midwest fell 3.4 percent in April to a pace of 1.12 million but are 9.8 percent above a year ago.  The median price in the Midwest was $149,300, up 6.7 percent from April 2012.

In the South, existing-home sales rose 2.0 percent to an annual level of 2.01 million in April and are 14.9 percent above 2012.  The median price in the South was $168,700, which is 10.6 percent above a year ago.

Existing-home sales in the West increase 1.7 percent to a pace of 1.20 million in April and are 4.3 percent above a year ago.  Given limited choices and multiple bidding, the median price in the West was $263,000, up 17.5 percent from April 2012.

Housing Starts-What March Giveth, April Taketh Away

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Today’s report on housing starts for April from the Census Bureau and HUD show a fall back from the revised March annual pace of 1.0 million units to 853 thousand.  Most of the decline is attributable to a correction in the multifamily sector.  Single family starts dipped to an annual pace of 610 thousand in April from 623 thousand in March, but multifamily starts plunged from a pace of 398 thousand in March to 243 thousand in April.

Multifamily starts traditionally are more volatile than single family and the swings in the last several months are a perfect example.  The average pace of multifamily starts has been 321 thousand since December, but that average is based on the pace of starts jumping up 97 thousand units in December from November’s pace before falling back 79 thousand units in January. February and March accelerated the pace by 114 thousand units, so the correction to the pace this month is no surprise.

Overall, today’s report is less exciting than it may appear, single family remains on track while multifamily continues to buzz.  The pace of single family construction has risen steadily since late 2011 while the pace of multifamily surged in late 2012.  It is expected that single family production to continue to make steady gains over the next two years on its way to a more normal level of production surpassing one million units annually.  Multifamily housing starts are likely to exhibit continued volatility as it finds its sustainable level of production between 350-400 thousand units annually.

Green Material Demand to Increase

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Demand for green buildings, and the materials that go into them, has remained relatively upbeat during the global recession.  Future market growth for green buildings and the commensurate use of green materials will be driven by a combination of policies and regulations that prioritize energy efficiency and green design.  With the expansion of voluntary certification programs for green buildings, cost reductions for green materials, and consumer demand is evidence that green building will have a market advantage.

Navigant Research estimates that the worldwide market for green construction materials will grow from $116 billion in 2013 to greater than $254 billion in 2020.

The Federal Trade Commission recently updated its Guides for the Use of Environmental Marketing Claims.  The “Green Guide” outlines the guidelines and requirements for companies and marketers making claims about their products’ environmental benefits.  This update by the FTC is an attempt to rein in the rampant “green washing” that is all too pervasive in the building materials industry and many others.

Cellulose insulation manufacturers are more than comfortable with these new FTC rules.  CIMA and its members have been producing products that are the gold standard of green building for many years.  It’s easy to meet these FTC rules, and make the claim for being green and environmentally friendly, with a product that is up to 85% recycled waste paper-the majority of it post consumer waste newsprint.  The fact is, cellulose insulation divers paper from landfills converting it into a highly efficient insulation material that saves energy, reduces green house gasses and sequesters carbon in the walls of buildings and homes for years and years.  On top of that, it requires a fraction of the embodied energy required to produce other leading types of insulation like fiberglass and foam.  That’s why CIMA and its members confidently states that cellulose insulation is “The Greenest of the Green.”

Short-Term Ups and Downs for Housing

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Recent housing market data have illustrated that while the long-run trend for housing remains one of improvement, there will be bumps along the way.  In particular, availability of building lots and skilled labor, rising building material prices, and big picture economic and policy developments will present month-to-month challenges for home builders and other housing businesses.

The share of first-time home buyers remains lower than the historic average.  For the housing market to return to normal, these buyers need access to credit and stable labor market conditions to afford a home.

Builder confidence has declined slightly in 2013 and one factor holding builder confidence back is a rise in the cost of some building materials.  Since March 2012 builders have seen significant increases in gypsum (18%), softwood lumber (30%) and OSB (68%).

Inventories of newly built homes continue to stand near historic lows at 153,000.  In a normal market, there are about 100,000 ready-to-occupy new homes for sale.  At the current sales pace, the inventory represents only a 4.4 month supply.

Rising rent could further increase demand for new and existing homes sales in the months ahead.  They have increased steadily since June 2012 and have now surpassed the cycle high established in May 2009.

Growing Labor Shortages Impeding Housing Recovery

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Growing labor shortages in all facets of the residential construction sector are impeding the housing recovery, according to the National Association of Home Builders (NAHB).

“They survey of our members shows that since June 2012, residential construction firms are reporting an increasing number of shortages in all aspects of the industry – from carpenters, excavators, framers, roofers and plumbers, to bricklayers, HVAC, building maintenance managers and weatherization workers.  The same holds true for subcontractors, “said NAHB Chief Economist David Crowe.

The survey also found that more than half of the builders reported that labor shortages over the past six months have caused them to pay higher wages or subcontractor bids to secure projects, and consequently, to raise home prices.  Moreover, 46 percent of the builders surveyed experienced delays in completing projects on time, 15 percent had to turn down some projects and 9 percent lost or cancelled sales as a result of recent labor shortages.

Part of the reason for labor shortages can be attributed to the fact that many skilled residential construction workers were forced to seek employment elsewhere during the recession and are no longer currently available.

The loss of tens of thousands of housing jobs mushroomed to more than 1.4 million during the peak of the downturn.  During this period, many trades retrained construction workers and they are not returning to the residential construction sector

Nationally, the construction of 1,000 single-family homes generates more than 3,000 jobs, approximately $145.4 million in wages, and more than $89 million in federal, state and local tax revenues.  That doesn’t count the increase in annual property taxes that local municipalities rely on to fund schools, police and firefighters.

As the economy mends, pent-up demand for housing will continue to grow, as roughly 2 million household formations were delayed as a result of the Great Recession.  In normal economic times, demand for new homes should be about 1.7 million annually.  NAHB is anticipating total housing starts of 970,000 this year and 1.18 million in 2014 as the market continues to gradual rebound.

 

New Homes are Less Expensive to Maintain

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April is new homes month.  And one of the virtues of a newly constructed home is the savings that come with reduced energy and maintenance expenses.

For example, for routine maintenance expenses, 26% of all homeowners spend $100 or more a month on various upkeep costs.  In fact, 73% of new homeowners spent less than $25 a month on routine maintenance costs.

Homeowners spent 78 cents per square foot per year on electricity and owners of new homes spent 65 cents per square foot per year.  Homes using natural gas spent an average of 53 cents per square foot while new homes spent 38 cents per square foot.

Choosing the right insulation is one of the most critical decisions a homeowner has to make when building a new home.  Fiberlite’s Cellulose Insulation will save you money month after month on utility bills.  Talk to your builder today and ask them how Fiberlite’s Cellulose Insulation can reduce monthly energy costs.

FHA Reform Efforts Must Ensure Borrowers Have Access to Affordable Home Loans

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With tight mortgage lending standards preventing well-qualified home buyers from obtaining home loans and impeding the housing and economic recovery, the National Association of Home Builders (NAHB) expressed support for congressional efforts to reform the Federal Housing Administration (FHA) but urged lawmakers to proceed in a cautious manner to avoid any disruptions to the nation’s housing finance system.

Testifying before the House Financial Services Subcommittee on Housing and Insurance, NAHB First Vice Chairman Kevin Kelly, a builder and developer from Wilmington, Del., pointed out the vital role that FHA played to help the housing sector emerge from its worst downturn since the Great Depression.

“While there is no doubt that the housing finance system needs to be reformed, the contributions that the FHA made during the economic downturn underscore the need for a government backstop for both the primary and secondary mortgage markets,” said Kelly. “In times of crisis, private sources of mortgage credit have been unable or unwilling to meet housing capital needs.”

Without government support for home purchasing and refinancing, Kelly warned lawmakers that the nation’s mortgage markets “will grind to a halt in times of economic stress and uncertainty.”

In 2006 before the housing downturn hit, FHA’s share of the market was a meager 3 percent as private financial institutions boasted a healthy presence. When the housing downturn hit, there was a role reversal, as private players fled the market and FHA-insured mortgages became the only credit option for first-time home buyers, minorities and those with limited down payment capabilities.

“This dramatic shift is evidence that FHA is performing its mission of providing the federal backstop to ensure that every creditworthy American has access to a stable mortgage product,” said Kelly. “As the private market assumes a greater role in the mortgage marketplace, maintaining an appropriate level of government support is essential to preserve financial stability, promote investor confidence and ensure liquidity and stability for homeownership and rental housing.”

Noting that the Federal Reserve and leading economists have warned that overly restrictive underwriting requirements are preventing creditworthy borrowers from accessing mortgage credit, Kelly called on lawmakers to take a long-term, holistic approach to housing finance reform.

“Changes to FHA’s programs cannot be separated from the larger discussion of reforming the complex housing finance system, including future reforms to Fannie Mae and Freddie Mac,” he said. “NAHB urges Congress to proceed cautiously and not to significantly alter the role of FHA programs.”

“Housing has led America out of every economic downturn and can do so again if the future policies regarding housing finance reforms are addressed in a manner that provides liquidity for the entire housing sector,” he added.

 

Home Energy Efficiency and Mortgage Risks

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A new report by the UNC Center for Community Capital and Institute for Market Transformation shows the risk of mortgage default is one-third lower for energy-efficient, ENERGY STAR-rated homes-a factor lenders and Congress should consider when making mortgage loans and policy.

It is the first academic study to assess the linkage between energy efficiency and mortgage risks.  Researchers examine a sample of 71,000 home loans from 38 states and the District of Columbia, all derived from CoreLogic’s mortgage database.  The sample is restricted to single-family, owner-occupied houses whose loans originated during 2002-2012.

About 35 percent of the houses in the sample were ENERGY STAR-rated for efficiency.  The odds for a mortgage default on an ENERGY STAR residence are one-third lower than homes without and ENERGY STAR rating.  Additionally, the study found that the extent of energy efficiency matters:  The greater a house’s efficiency, the lower the risk of default.

Congress should consider these findings in its deliberation of current and proposed legislation to improve the accuracy of mortgage underwriting.  Lenders may want to require an energy audit or rating as part of the mortgage underwriting process, and federal housing agencies could promote underwriting flexibility for mortgages on energy-efficient homes.

American households spend around $230 billion each year on energy, not including transportation, and the residential sector accounts for 20 percent of the total energy consumed in the United States.  Energy efficiency in the residential sector has a potential to save $41 billion annually, according to research by McKinsey & Company.

Nationwide Housing Production Edges Up in February

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Nationwide housing production edged up 0.8 percent to a seasonally adjusted annual rate of 917,000 units in February, according to newly released figures from HUD and the U.S. Census Bureau. This slight upward movement represented gains in both the single-family and multifamily sectors, with single-family housing starts reaching their fastest pace since June of 2008.

“Demand for new homes and apartments is definitely rising as the spring buying season approaches and more young people move out on their own,” said Rick Judson, chairman of the National Association of Home Builders (NAHB) and a home builder from Charlotte, N.C. “Builders are responding to this improved demand by putting more crews back to work and pulling more permits for future construction, though this positive activity is being constrained by continuing issues with appraisals and credit availability for both builders and buyers, and also by newly arising challenges such as lot shortages and increased costs for labor and materials.”

“Today’s report indicates that, despite some bumps in the road, overall housing production continues on the solid upward trend that we saw throughout 2012,” noted NAHB Chief Economist David Crowe. “Moreover, further gains in permit issuance are a positive sign that home construction will continue to drive economic and job growth in the coming months, albeit at a slower pace than would be possible without certain limiting factors.”

Single-family housing starts eked out a 0.5 percent gain to a seasonally adjusted annual rate of 618,000 units in February, bringing them to their highest level since June of 2008, while multifamily starts rose 1.4 percent to 299,000 units.

Regionally in February, combined single- and multifamily housing production rose strongly in the Northeast and Midwest with gains of 18.4 percent and 37.5 percent, respectively, but fell 5.7 percent and 7.2 percent in the South and West, respectively.

Overall permit issuance rose 4.6 percent to 946,000 units in February, the strongest pace since June of 2008. That gain included a 2.7 percent increase to 600,000 units on the single-family side and an 8.1 percent increase to 346,000 units on the multifamily side.

The Midwest, South and West posted respective gains of 1.4 percent, 9.9 percent and 6.4 percent in permitting activity for February, while the Northeast posted an 18.2 percent decline.

FTC Cracks Down on Green Claims

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The Federal Trade Commission (FTC) recently updated its Guides for the Use of Environmental Marketing Claims. The “Green Guide” outlines the guidelines and requirements for companies and marketers making claims about their products’ environmental benefits.

This update by the FTC is an attempt to rein in the rampant “green washing” that is all too pervasive in the building materials industry and many others. As the interest in green building continues to increase so do the vague and questionable green claims by companies seeking to profit on this growing phenomenon. Green is generating a lot of green and the potential for growth in green building continues to show promise as the debate over climate change and other environmental planetary concerns mount.

Cellulose insulation has been the gold standard for green building for many years.  It’s easy to meet the FTC rules, and make the claim for being green and environmentally friendly, with a product that is 82% recycled waste paper with a majority of it post consumer waste newsprint.  The fact is, cellulose insulation diverts paper from landfills converting it into a highly efficient insulation material that saves energy, reduces green house gasses and sequesters carbon in the walls of buildings and homes for years and years.  On top of that, it requires a fraction of the embodied energy required to produce other leading types of insulation like fiberglass and foam.

Everyone should applaud the FTC’s efforts to keep green claims in product marketing truthful and accurate. Protecting the integrity of green product marketing is critical to ensuring confidence as consumers try to make purchase decision that embrace the benefits of true green products like cellulose insulation. Every bogus claim risks the possibility of diminishing that interest and desire. When people seek out green products in an attempt to make a difference for the environment it’s important that the information provided for such products is straight forward and easy to understand. The updated guidelines require just that.