Real Estate Data for the Rest of Us

articles about “New Construction

To Buy a New or an Existing Home? Why, How Much, and Where

41% of Americans say they would prefer to buy a newly built home over a previously-lived-in home; modern features and the ability to customize the home are the top reasons. However, just 46% of the people who strongly prefer a new home are willing to pay the 20% premium that new homes typically cost.

Should you buy a newly built home or one that’s been previously lived in? Both have their advantages and both have people who love them. Trulia surveyed 2,048 Americans in late March and early April 2014 about their preferences for new versus existing homes, and also analyzed recent home-purchase and building-permit data from the Census. Here’s what we found.

Twice as Many People Prefer New Homes Over Existing Homes
For the same price, 2 in 5 of Americans (41%) strongly or somewhat prefer to buy a newly built home over an existing home. Just 21% strongly or somewhat prefer an existing home. The remaining 38% have no preference. (The survey question explained that “new” means newly built, while “existing” means someone else has lived in it.)

Trulia_NewVsExisting_PieChart_5.55.14_v2

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Will Winter Weather Wobble Housing?

January’s polar vortex should knock construction and home sales activity down, but only by 1-2%. If sales, starts, or permits drop by more than that, don’t just blame the weather.

Jed Kolko, Chief Economist
February 18, 2014

If January construction and home sales data – which come out this week and next – show declines, the “polar vortex” will be prime suspect #1. But how much did January’s weather really affect housing? Last month, we showed that cold weather boosts online home searches, particularly for homes in warmer regions. On the flip side, construction and sales activity should decline in bad weather since many construction sites are unprotected from the outdoors, and sales depend on people braving the elements to go to open houses, signings, and the like. But does it?

To estimate how much January weather affected construction and sales, we looked back at more than a decade of weather and housing data. We calculated the historical relationship between abnormal weather (temperature and precipitation) and month-over-month changes in five types of housing activity (construction starts, construction permits, new home sales, existing home sales, and pending home sales) in each of the four regions (Northeast, Midwest, South, and West).

WinterWobble_sm

Did Housing Freeze Up Last Month?
Applying the historical patterns to last month’s actual temperature and precipitation shows that January weather probably contributed to a small decline in all five housing activities. The January month-over-month housing data coming out in the next two weeks should be 1-2% lower than it would have been if last month’s weather had been in line with January norms:

Housing activity

Predicted January weather effect

January data release date

Construction starts (Census)

-1.1%

2/19

Construction permits (Census)

-1.4%

2/19

Existing home sales (NAR)

-1.1%

2/21

New home sales (Census)

-2.1%

2/26

Pending home sales (NAR)

-1.3%

2/28

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Whipsaw Week Turns Out Strong for Housing Data

The short holiday week isn’t halfway done, but three new data reports have given new signals about the housing recovery.

Jed Kolko, Chief Economist
November 26, 2013

Yesterday NAR reported the fifth straight monthly drop in pending home sales. Today, however, Census reported a big jump in new building permits, to the highest level in 5 years, and Case-Shiller reported the largest month-over-month increase in home prices since April. What should we make of these mixed signals?

Sales
•Some of the weakness in the October pending home sales data was probably due to the government shutdown. Watch next month’s data closely for signs of a rebound.

•The October existing home sales data – released last week – were also down, but the overall number masked a key trend: the continued shift from distressed (foreclosure and short sales) to conventional sales. While overall existing sales rose just 6% year-over-year, conventional sales were up 22% year-over-year.

•The shift from distressed to conventional sales is a key part of the housing recovery. Sales data that combine distressed and conventional sales – like pending sales index and the existing home sales index – understate the recovery in home sales.

Permits
•Today’s October 2013 permit data showed multifamily permitting the highest in 5 years, with single-family permits just shy of their 5-year high. This was a strong report for construction. The housing starts data for September and October won’t be released until December 18, however.

•These solid permits data are not just due to monthly volatility. The three-month average for total building permits (i.e., Aug-Oct) is also at a 5-year high.

•The construction recovery is uneven. Permits are now above local norms in metro Boston, NYC, San Francisco, Austin, Houston, Oklahoma City, and San Jose. However, permits are still way below local norms in Atlanta, Phoenix, Las Vegas, Sacramento, Chicago, and Detroit.

Prices
•Today’s Case-Shiller report for September showed the biggest month-over-month increase since April for the 20-metro index. The more reliable national quarterly report showed Q3 prices rising slightly faster than in Q2 – and the second-highest quarterly gain since 2005 Q4.

•Price gains are clearly slowing in California. In the rest of the country, though, prices are accelerating in some markets and slowing in others.

•Case-Shiller data show what was happening in the market several months ago. The Trulia Price Monitor shows the current trend: October asking prices slowed slightly, but prices are still rising at a fast pace. We’ll report November’s Price and Rent Monitors next Wednesday, December 4.

Overall, this has been a strong 24 hours for housing data. The broader trend in sales data is better than the pending home sales report appears because of (1) the shift from distressed to conventional sales and (2) some of the drop is probably temporary impact of the shutdown.

Price data show healthy slowing from unsustainable levels earlier this year but no signs of a crash. The best news for the housing recovery, though, is the strong permits data. Construction has been the laggard of the recovery, with starts still 40% below normal (as of August), held back by high vacancy rates and slow household formation. The jump in permits points to more construction activity in the next month or two and more inventory coming onto the market next year.

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Why is Construction Activity Still So Low?

Construction won’t fully recover until housing and labor market fundamentals improve. Nationally, the vacancy rate is still too high, and household formation is too low to support normal levels of construction activity.

Jed Kolko, Chief Economist
September 17, 2013

New home construction starts and new home sales are recovering much more slowly than other housing indicators. In August, new home starts and new home sales were 40-50% below normal levels, in contrast with existing home sales, which were just 2% below normal. (By “normal,” we always mean the long-term historical average, not the peak of the bubble, which was anything but normal.) Likewise, Trulia’s latest Bubble Watch reported that prices look just 5% undervalued. What’s holding construction back? The vacancy rate and household formation are two fundamental drivers of construction demand, and both still look weak.

A Brief Soak in the Bathtub of Housing Data
To understand why the vacancy rate and household formation matter for new construction, here’s a simple analogy. Think of the vacant housing stock as water in a bathtub. The bathtub fills when new homes are built. The bathtub drains as vacant homes are occupied, which depends on how fast the overall number of households is increasing – “household formation.” (Side note #1: Newly formed households, who tend to be young, might not be the actual people moving into the newly constructed homes, which tend to be more expensive; rather, this is about aggregate numbers of housing units and households. Side note #2: for simplicity, we’re ignoring the fact that some obsolete vacant homes get demolished.)

When new construction runs ahead of household formation, more water fills the bathtub than drains out – which means the number of vacant homes grows. But when new construction is slower than household formation, the level of the bathwater falls. There’s no magical level of bathwater that’s perfect, but too little water in the tub means a housing shortage, and when the bathtub overfills, that glut of vacant homes might cause a price crash. In the long run, to keep the bathwater from being too high or too low, the “right” level of new construction depends on BOTH the vacancy rate (how full the bathtub is) AND on household formation (how fast the tub is draining).

In the U.S. today, the bathtub is fuller than normal (high vacancy) and is draining slowly (slow household growth). If the faucet were on full force (normal construction levels), our bathtub would soon overflow. Now let’s all towel ourselves dry and look at the two key facts:

1. High vacancy rate means no housing shortage, despite inventory shortage.
The national vacancy rate in 2013 is above its pre-bubble level. The share of all housing units that stood vacant (year-round vacancies only, not “seasonal” vacancies like beach homes) was 10.3% in 2013 Q2 according to the Census, closer to its high point after the bubble burst (10.9% in 2010) than to its pre-bubble level (8.9% in 2000).

If you’ve been house hunting recently, you’re probably surprised that vacancies are high because relatively few homes are listed for sale. Even though inventory has been recently trending upward a bit, for-sale listings are still well below normal. The share of all for-sale homes each year (based on NAR inventory for June and Census total housing stock for Q2) peaked in 2007 but is now at lowest level since 2000.

That means there’s an inventory shortage, not a housing shortage. Despite the shortage of listed inventory, there are plenty of vacant homes NOT listed for sale. Many of those vacant, off-market homes could come onto the market, especially if their owners are just waiting for prices to rise enough to make selling worthwhile. This graph tells the story:

Construction_HousingShortage_Chart

In short: the vacancy rate – or, the level of the bathwater – is still relatively high.

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Relative to Construction Activity, There Are Actually a Lot of Construction Jobs

Even though construction employment is rebounding more slowly than construction activity, there are more construction jobs per unit under construction than normal

In the monthly employment report for March, the Bureau of Labor Statistics (BLS) reported this morning that residential construction jobs increased 3.8% year-over-year. (We include both “residential building construction” and “residential specialty trade contractors” – here’s why.) That’s faster than the overall employment increase of 1.4% – reflecting that housing is now a critical part of the economic recovery.

A quick glance suggests that construction jobs aren’t keeping up with construction activity. Even though residential construction employment growth is outpacing overall employment growth, it’s puny relative to the rebound in construction activity, measured in housing units or dollars:

The Housing Recovery: Jobs, Housing Units, and Dollar Value

% Change
Y-o-Y

% Change since bottom

Residential construction jobs

3.8%

7.0%

New housing units under construction

28%

39%

Dollar value of residential construction
(new construction only)

34%

50%

Dollar value of residential construction
(new construction plus improvements)

18%

32%

Note: Jobs data through March 2013, from BLS; units under construction and dollar values through February 2013, from Census. Dollar values are adjusted for inflation and reflect the cost of labor, materials, contractor’s profit, and more. “Bottom” was January 2011 for jobs; Aug 2011 for units; May 2011 for dollar value (new only); and July 2011 for dollar value (new plus improvements). 

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