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HOUSING ECONOMICS 101: HOUSING SUPPLY < HOUSING DEMAND
Housing Prices continue to rise across the U.S. By local markets, the deviations in home price changes are dramatic. The Housing Market is basic economics: supply and demand factors are out of balance at the local market levels.
Housing Demand Factors will generally be strong as families continue to pursue homeownership as a goal. Augmenting Housing Demand Factors is also easier to accomplish than augmenting Housing Supply Factors. In recent years, the historically low level of mortgage interest rates augment demand. Actions to lower down payments on home purchases augmented demand. Shifts to FHA financing augmented demand.
Housing Supply Factors are much more difficult to influence. Home building is not like manufacturing automobiles where several plants across the U.S. (or internationally) can produce and have these vehicles delivered to dealerships across the country economically. Determining job growth - and where homes are needed - is difficult. The Great Recession’s impact on home builder risk tolerance has resulted in a more conservative approach to housing tract development. And the lack of a national policy on housing and legislative actions to support new supply will continue to hinder bringing Housing Supply into balance with Housing Demand.
Housing & the Economy
Residential Construction Spending: $507 billion spending on residential construction - down (7)% YoY. Spending is up significantly since the trough, but remains well below the peak.
Housing and GDP: Housing sector recovery solid, but has stalled at around 3.7% share of GDP. Remains well below peak of 6.7%.
Multifamily Housing GDP Trends: Multifamily housing construction spending solid with $65 billion annually but remains ~13 percent of all residential investment spending.
Housing and Quarterly Residential Investment Trends: Housing sector has been negative contributor to GDP growth with growth in residential investment down in each of the last four quarters and eight of the last eleven quarters. Residential recession?.
Housing supply - new building permits
Building Supply Ratio: For this graphic, Building Supply Ratio is defined as number of new residential housing permits per 1,000 population. While significantly above trough, the ratio remains well below peak, trend average and levels achieved in early 2000's. Supply shortfall could be as high as +550,000.
Building Permits: While significantly above trough, new building permits on latest 12 months basis remain well below peak. Over recent months, L12M new building permits have declined YoY. Compared to average L12M new building permits from 2000 to 2004, current levels of new building permits result in ~450,000 fewer new housing units on annualized basis.
Building Permits by State: This table shows latest 12 months cumulative building permits and compares to latest 12 months one month, one quarter and one year ago in addition to peak and trough since 2000. Building permits have slowed over past quarters.
Housing starts - single & multi-family
Housing Starts: Housing starts had solid recovery. However, single-family starts remain approximately fifty percent below peak levels. In the supply / demand equation, this is the key component of supply. And, over most recent 12 months, housing starts have weakened and are down. Regionally, the South is the exception.
Housing Starts - SF & MF: Housing starts reflect the housing market recovery. For latest 12 months, housing starts are down slightly compared to the same period a year ago. Recent month trend data suggests housing starts have slowed. Total housing starts - primarily due to S-F starts - remains below peak.
Multifamily Housing Starts: Multifamily housing starts recovered significantly from recession, but have started to decline recently. Latest 12 months, M-F starts are essentially flat to year ago. And M-F starts as percent of total housing starts had risen above 30 percent. M-F housing starts have surpassed pre-crisis peak.
Single Family Housing Starts: Single-family housing starts reflect the housing market recovery. For latest 12 months, S-F housing starts are down ~3% compared to the same period a year ago. S-F housing starts remain ~50% below peak.
Housing Starts - regional perspective
New Home Sales Trends: New home sales reflect the housing market recovery. For latest 12 months 2019, new home sales are down slightly compared to the same period a year ago. And new home sales remain significantly below peak.
Home Sales: Existing and new home sales reflect the housing market recovery but total sales for latest 12 months are down from one year ago; and remain well below peak.
New Home Sales to Total Home Sales: New home sales as percent of total residential sales has been trending upward to 10 percent for latest 12 months 2018 - compared to approximately 15 percent in peak years.
Existing Home Sales: Existing home sales also reflect the housing market recovery through 2017. However, 2018 and LTM 2019 existing home sales were down ~4% compared to one year ago; and remain well below peak.
New & Existing Home Sale Prices: Median prices (LTM moving average) on new homes have generally risen faster than sale prices (LTM moving average) for existing homes until recently - over past year or so, new home prices have slid downward; changes in existing home prices continue to trend upward.
New Home Sale Prices by Range: The primary reason for the rising new home prices is that the mix has shifted significantly away from homes priced below $200 thousand to homes priced above $300 thousand.
Homeownership & housing stock
Homeownership by Age Cohort: While there have been declines across all age groups from the peak levels, the decline among millennial and Gen X segments is significant.
Homeownership Rate: Homeownership trends appear to have leveled off following a modest recovery. At 64.1%, homeownership rate recovered 1.2 percentage points from trough, but remains >5 percentage points below its peak.
Housing Stock: Owner-occupied housing has leveled off following a brief recovery; renter-occupied housing had jumped significantly and leveled off at a new plateau. Vacant housing units remain substantially elevated relative to historical norms but decreased this quarter, following several quarters of increases.
Rental Vacancy Rates: As homeownership declines and demand for rental housing rises, we have seen rental vacancy rates drop and rents increase. Recently rental vacancy rate have risen slightly as homeownership rates have recovered.