Up this week are two areas of housing investment – new multi-family construction and remodeling – and a look at how people’s attitudes about housing are affected by personal experience.
What’s Bob the Builder Working on Now?
One of the clearest signs that the housing market is – and has been — suffering is that builders aren’t building a lot of new homes. Only when builders think demand for new homes is growing and that prices are going up will they pick up the pace. This week, the Census reported that housing starts remain in the doldrums: in September, builders started construction on new single-family homes at an annual rate of 425,000 homes. During the bubble years of 2003-2005, single-family construction averaged 1.5 – 2 million annually, and was 1 – 1.5 million in the years before that, so current rates are nowhere near even normal levels. But construction of housing units in buildings with 5 or more units – apartment buildings, mostly – has jumped to more than twice the rate at the bottom of the recession and is moving steadily upward.
Why are big buildings suddenly so popular? Well, rents are rising as more people choose to be renters by choice or out of necessity. As a result, more and more renters are fighting over whatever apartments are available. That said, this multi-family construction boom won’t put the brakes on rising rents just yet. It takes a little over a year between the start and completion of a typical multi-unit building, so you can expect rents to keep climbing for much of 2012.
Source: Census Bureau, Construction Statistics
It’s Not What You Know, It’s Who You Know
As I’m writing this on Thursday afternoon, our downtown San Francisco office was shaken by a 3.9 earthquake – a minor rumble but enough to rattle the nerves of my colleagues who haven’t felt the earth move before. When it comes to housing, nerves work the same way. A new study looks at how consumer attitudes about housing have been rattled by price tremors in their neighborhoods. The people who are least confident that owning is a better financial move than renting are those who (1) live in neighborhoods with bigger price drops AND (2) have or knows someone who has recently experienced foreclosure or lost a lot of money in real estate. Meanwhile, people who live in neighborhoods with falling prices but who aren’t personally close to anyone hurt financially from housing remain bullish on housing. With the housing market, as with earthquakes, it takes personal experience to change your attitudes.
Link to the study of consumer attitudes
Link to latest North American earthquakes
Why Are Home Makeovers So Popular Today?
Suffering rattled nerves about homeownership but frustrated that rents are going up? What’s a homeowner left to do? Remodel! Residential remodeling construction permits are higher now than even at the height of the housing boom in 2004 & 2005. While remodeling is seasonal – in every year permits peak in summer and dip in the winter – the number of permits in August 2011, announced this week by BuildFax, was 29% higher than August 2010. Granted, you could say, this jump just looks big when you compare it to the remodeling declines during the economic slump in 2008 and 2009, but the drop was nowhere near the plunge in single-family construction (see above). In other words, this surge in remodeling is more than a return to normal. So what does this all mean? Well, it’s a sign that people are sprucing up their homes because they’ve decided to stay put or are remodeling in order to sell. For homebuyers, more remodels could mean fewer homes for sale, but better pickings for buyers who can’t live without state-of-the-art lighting and a high-end commercial-style kitchen.
Link to BuildFax’s Remodeling Index