Real Estate Data for the Rest of Us

articles about “New Construction

Are We Building Too Many Single-Family Homes?

The vacancy rate for single-family homes increased in 2013 and remains well above bubble and pre-bubble levels.

Jed Kolko, Chief Economist
September 17, 2014

What? Too much new single-family construction? It sounds hard to believe, with only 618,000 single-family housing starts in 2013, heading toward 622,000 in 2014 – far below the pre-bubble average of 1.1 million per year in the 1990s. Even when adding in multi-unit building, which is booming, construction remains a laggard in the housing recovery and is contributing less than it should to employment and economic growth.

Of course, the historical norm doesn’t tell us what the just-right level of construction is now. That depends on the rate at which new households are formed. If new construction runs ahead of household formation, more homes sit empty and the vacancy rate rises. In 2004 and 2005, during the bubble, construction of single-family homes soared to over 1.5 million units. Then, during the bust, household formation slowed, in part because more young people lived with parents. Too much housing and too few households were a dangerous cocktail during the housing bust and recession, causing the vacancy rate to climb until 2010. Since then, the vacancy rate has fallen, but single-family construction has continued to wallow near all-time lows.

Newly released data from the Census Bureau’s American Community Survey (ACS) show that the vacancy rate for single-family homes actually ticked up a bit in 2013. That’s a big surprise. It suggests even today’s low level of single-family construction might still be too much, too soon. To determine whether we’re building too many homes, we need first to understand household formation, and then the vacancy rate.

Single-Family Rentals Increased Despite Low Household Formation Rate
To understand what’s happening with vacancy rates, let’s start by looking at changes in households and housing units in the past year broken down by owner-occupied and rented, and single-family and multi-unit:

Type of unit Change, 2012 to 2013, ‘000s Change, 2012 to 2013, % Change, 2006 to 2013, ‘000s Change, 2006 to 2013, %
Owner-occupied single-family -184 -0.3% -428 -0.7%
Renter-occupied single-family 331 2.3% 3540 31.2%
Owner-occupied multi-unit (i.e. condos) 18 0.5% -269 -6.4%
Renter-occupied multi-unit (i.e. apartments) 263 1.0% 2259 9.7%
Total single-family units, incl. vacant 226 0.3% 4701 5.5%
Total multi-family units, incl. vacant 199 0.6% 2131 6.5%
Total housing units, incl. vacant 356 0.3% 6496 5.1%
Total households 321 0.3% 4674 4.2%
Note: total housing units and total households include mobile homes, boats, RV’s, vans, etc. and their occupants.

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Hottest Homebuilding Markets of 2014

Although construction activity remains well below normal nationally, homebuilding in Boston, New York, San Jose, Houston, and several other local markets is booming.

Jed Kolko, Chief Economist
August 18, 2014

Construction activity is a fundamental measure of local housing market health. That’s because homebuilding is both a signal of where builders are betting on future housing demand as well as a creator of local jobs. In this housing recovery, construction might even be a better measure of local market health than home price changes, which have been driven in part by investors and others buying undervalued homes.

Census building permit data reveal which markets are breaking new ground. Based on permits for the first half of 2014, we projected the level of building permits for the full year of 2014 for each metro, compared with the metro’s own historical annual average level of building permits from 1990 to 2013. Of course, the historical average level of construction ranges from a lot in places like Las Vegas and Raleigh to very little in places like San Francisco and Detroit, but we’re looking at how far each metro’s 2014 construction activity is above or below its own historical average.

Where Construction is Booming
Construction activity is highest relative to the local norm in Boston, New York, San Jose, and Houston, which are on track to build at least 50% more new homes in 2014 than their local historical average. The rest of the top 10 are in CaliforniaTexas, or Oklahoma. Of course, the normal level of construction in many of these markets – particularly Boston, New York, Los Angeles, and San Francisco – is low relative to most other metros across the country, but in 2014 they’re outperforming their own historical norm.

Top 10 Metros Where New Home Construction Is Highest Above Normal
# U.S. Metro 2014 annualized permit activity relative to metro historical norm Year-over-year asking home price change, July 2014 Multi-unit building share of 2014 permits
1 Boston, MA +73% 6.0% 71%
2 New York, NY-NJ +70% 5.6% 92%
3 San Jose, CA +69% 9.1% 75%
4 Houston, TX +61% 10.4% 34%
5 Oklahoma City, OK +42% 3.4% 23%
6 Orange County, CA +40% 6.6% 57%
7 Austin, TX +39% 12.3% 44%
8 Dallas, TX +36% 7.6% 51%
9 San Francisco, CA +36% 12.1% 84%
10 Los Angeles, CA +34% 9.3% 73%
Note: among the 80 of the 100 largest metros for which sufficient local permit data are available. Sources: Census and Trulia.

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The Housing Recovery Needs More Than Just Rising Prices

In the boom-and-bust housing markets with the biggest price rebounds, construction activity is lagging. In contrast, the markets where construction has recovered include big-city metros with strong rental demand. Rents are up 4.5% year-over-year, and rental affordability is worst in Miami and New York.

The Trulia Price Monitor and the Trulia Rent Monitor are the earliest leading indicators of how asking prices and rents are trending nationally and locally. They adjust for the changing mix of listed homes and therefore show what’s really happening to asking prices and rents. Because asking prices lead sales prices by approximately two or more months, the Monitors reveal trends before other price indexes do. With that, here’s the scoop on where prices and rents are headed.

Yearly Price Gain Smallest in 11 Months, Despite Steady Monthly Rise
Nationally, asking prices rose 0.8% month-over-month and 2.8% quarter-over-quarter in April, seasonally adjusted. Those gains are in line with March increases and show that home prices continue to rapidly climb.

However, asking prices rose 9.0% year-over-year, which is the smallest year-over-year increase in 11 months. Why are year-over-year price increases slipping despite month-over-month and quarter-over-quarter increases holding steady? One reason is that the biggest price spike during the housing recovery happened between February and April 2013, and the year-over-year change in April 2014 no longer includes those months.

TruliaPriceMonitor_LineChart_Apr2014

April 2014 Trulia Price Monitor Summary

 

% change in asking prices

# of 100 largest metros with asking-price increases

% change in asking prices, excluding foreclosures

Month-over-month,
seasonally adjusted

0.8%

Not reported

0.8%

Quarter-over-quarter,
seasonally adjusted

2.8%

97

2.8%

Year-over-year

9.0%

97

8.4%

*Data from previous months are revised each month, so data being reported now for previous months might differ from previously reported data.

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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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