Housing starts are still low, but jump in permits suggest builders are planning

Housing construction hasn’t recovered to pre-pandemic levels yet, but more permits were issued last month than expected. (Credit: iStock)

Housing construction hasn’t recovered to pre-pandemic levels yet, but more permits were issued last month than expected. (Credit: iStock)

The latest federal numbers show that homebuilders are planning more construction than expected, but actual construction is lagging.

The Commerce Department reported this week that construction permits rose 14.4 percent month-over-month in May, above economists’ 10.8 percent projection, according to the Wall Street Journal.

Housing starts however were up just 4.3 percent, well below the 22.3 percent projected and nowhere near enough to make up for April 26.4 percent decline in starts brought on by the coronavirus pandemic.

Work started on around 974,000 projects nationwide last month, compared to 1.27 million in May 2019. January 2020 saw the most starts of any month since the beginning of last year, with 1.62 million starts.

The modest improvement in starts could be attributed to hesitation among contractors to start jobs because of confusion over new rules meant to mitigate the spread of coronavirus, which vary between jurisdictions. The higher costs associated with adopting those measures could also be slowing starts.

May’s lackluster starts could reflect short-term delays. Other data suggests the mid-term and long-term prospects for the housing market are better than what May’s number reflect.

The National Association of Builders’ poll saw builder sentiment record its highest jump ever, according to the Journal.

Mortgage applications hit an 11-year monthly high last week, while refinancing surged 10 percent month-over-month thanks to low interest rates. [WSJ]Dennis Lynch

The exodus: A rise in remote working could crater expensive housing markets

Companies across the U.S. are warming up to the idea of remote working. Some employees who live in expensive regions like the San Francisco Bay Area, figure they might as well move someplace cheaper. (Credit: iStock)

Companies across the U.S. are warming up to the idea of remote working. Some employees who live in expensive regions like the San Francisco Bay Area, figure they might as well move someplace cheaper. (Credit: iStock)

Why pay an arm and a leg to live near your Silicon Valley office if you don’t need to anymore? That’s what some highly-paid tech workers are asking themselves.

The coronavirus pandemic has forced remote working on scores of companies and some have decided to embrace it. Some of their employees are taking it as an opportunity to escape the super high rents and home prices in the Bay Area, according to Bloomberg.

Dylan Hecklau, who works for a San Mateo-based company, said he’s planning to put a down payment on a home in Sacramento with money he set aside for a vacation. He pays $3,200 a month to rent in San Francisco.

“With nothing keeping me here, I can’t justify paying the rent prices,” he said.

A shift in policy could put downward pressure on rents in notoriously expensive markets like the Bay Area, New York, and Los Angeles.

Facebook and Google announced that the majority of employees won’t need to come into their offices for the rest of the year. Twitter is letting some employees permanently work from home if they want.

Leadership at San Francisco-based cloud communications company Twilio expects about 20 percent of employees to work remotely in the long-term.

Twilio exec Christy Lake said the company was mulling a relocation bonus for employees, but that it could pay less to employees who live in cheaper markets.

“It’s probably not great business practice to pay Bay Area comps in Michigan,” she said.

Industry pros might also find that remote working means more competition for jobs because it widens the pool of employees available to companies. [Bloomberg] — Dennis Lynch

Barbara Corcoran: Now is the time to find “sweetheart deals”

Barbara Corcoran (Credit: Mike Pont/WireImage, iStock)

Barbara Corcoran (Credit: Mike Pont/WireImage, iStock)

The pandemic has made buying or selling a home a real feat, but Barbara Corcoran says those who keep their ears to the ground will be rewarded.

The Corcoran Group founder told Yahoo Finance that smart homebuyers will “stay involved” in the market, watching sales data and shopping online.

“Then they’re in the position to actually recognize a sweetheart deal when they see it and if they pounce on it, they’re going to get a deal of a lifetime,” she said.

There are other reasons to stay in the game, namely that mortgage rates are near record lows.

But finding a property isn’t easy. Lockdown measures in hard-hit areas like New York City and San Francisco have made it impossible to tour properties, at least legally. Sellers are also pulling listings off the market and waiting to list new ones — 89 percent fewer listings hit the market in Manhattan from late March through mid-April than did last year.

Corcoran said that times of uncertainty are the best times to pounce.

“I can tell you that every real estate cycle that has gone up and down, the deals weren’t made in the down cycles or the up cycles, they were always made in there’s greatest uncertainty and everyone’s guessing,” she said. [Yahoo Finance] – Dennis Lynch

Homeowners looking to refinance boost mortgage applications

Refinancings drove home loan application volume up by 7.3 percent in the second week of April 2020, according to MBA’s weekly index. (Credit: iStock)

Refinancings drove home loan application volume up by 7.3 percent in the second week of April 2020, according to MBA’s weekly index. (Credit: iStock)

Home loan applications trended upward last week, buoyed by homeowners looking to refinance.

The Mortgage Bankers Association’s weekly index measuring home loan application volume saw a 7.3 percent increase last week, for the period ending April 10.

Refinancings accounted for 76.2 percent of mortgage activity last week, according to MBA. That marks a 10 percent increase from last week, and a 192 percent jump year over year.

Still, that’s down 26 percent compared to four weeks ago, when the Federal Reserve’s first emergency rate cut had mortgage lenders anticipating a bumper year and a boom in refinance applications. The overall number of applications is down 28 percent compared to four weeks ago.

MBA’s purchase index slid almost 1 percent, marking the fifth consecutive weekly decline in home purchase applications. In the previous period, the week ending April 3, purchase application activity fell to its lowest level since 2015.

Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting, said the purchase index was down 35 percent compared to the first week of March.

But he pointed to the 30-year fixed mortgage rate declining to 3.45 percent as a sign that the mortgage-backed securities market is “stabilizing.” That marks a 4 basis point drop from the previous week’s contract rate, which is down nearly 99 basis points year over year.

When the Fed announced its second rate cut in mid-March, it also announced it would purchase at least $200 billion of mortgage-backed securities, which experts said would allow banks to keep lending and set the stage for recovery.

In a forecast released in early April, MBA predicted that refinance activity would account for roughly half of originations through the third quarter of 2020.

Write to Erin Hudson at [email protected]

Bernie Sanders throws support behind New York rent-suspension bill

Bernie Sanders (Credit: Getty Images)

Presidential candidate Bernie Sanders has thrown his weight behind Sen. Michael Gianaris’ rent-suspension bill.

“Along with pausing mortgage payments, evictions, and utility shutoffs, we must place a moratorium on rent payments, especially in states hardest-hit by the coronavirus like New York,” Sanders tweeted on Saturday morning. “We must build on the important work [Gianaris] and others are doing to make this happen.”

Gianaris’ bill is quickly gaining momentum. Along with the national attention, Senate Bill 8125 has 21 co-sponsors in the state senate, just one week after having been formally introduced.

According to the legislation, rent and mortgage payments would be forgiven rather than postponed. An executive order issued by New York Gov. Andrew Cuomo last week urged banks to defer mortgage payments for 90 days for homeowners suffering because of the health crisis, but offered no such equivalent for apartment owners and renters.

A relief package for landlords with mortgages backed by Fannie Mae or Freddie Mac came earlier this month. Most renters will receive some financial assistance from the government in the form of a one-time payment of $1,200, in a $2 trillion federal stimulus package which passed on Friday. But there is little else in the package for multifamily real estate owners or renters.

Along with waiving rents for 90 days, the Queens Democrat’s bill would allow landlords in financial distress to apply for forgiveness of their mortgage payments in an amount equal to that of unpaid rent stemming from coronavirus-caused hardship.

For renters, late fees would not apply during the 90-day period, and any lease that expires during that time would be automatically renewed, with the monthly rent unchanged.

Critics of the legislation question how such a waiver would be enforced, and are instead pushing for relief for landlords in the form of a tax abatement, which could be passed on to tenants in the form of a rent reduction.

Lennar says homes are still selling despite coronavirus

Lennar’s Stuart Miller

Lennar’s Stuart Miller

The novel Coronavirus is a “circuit breaker” that will have profound implications on the market, but with low interest rates people are still buying homes, Lennar’s executive chairman Stuart Miller said on a conference call with analysts.

Miami-based Lennar, one of the country’s largest homebuilders, reported its first quarter earnings on Thursday, but its executives talked mostly about how the company and the housing market will fare during the economic fallout from the pandemic. The company announced it will suspend guidance in light of the crisis.

Miller said Lennar is working on new ways for buyers to buy homes, including through the company’s digital programs as well as drive-through closings, where homebuyers can close on a home through their car.

“Even in the current environment we are selling homes, people are attracted to the safety and security of our homes,” Miller said in the conference call. “Since the end of the first quarter, new orders continue to be strong.”

Lennar is seen by analysts as a bellwether for the broader U.S. housing market and how the industry and the housing market will fare during the crisis. Lennar’s stock jumped 5 percent to $32.43 after the conference call with analysts at 12:40 p.m. An exchange traded fund that tracks the homebuilding market, SPDR S&P Homebuilders, is up 2 percent since the beginning of the day to $26.50.

As the impacts of the virus play out, the homebuilding and housing markets could take a hit, something Miller acknowledged in its earnings. In Boston, all construction has been halted by the city government, which is something that could play out in other markets.

“Although our business has not shut down we are keenly aware that this landscape can change very quickly,” said Miller.

To prepare for more serious challenges, the company has slowed down its land purchases and is focusing on reducing its outflow of cash to boost its liquidity and balance sheet position, according to a statement accompanying its first quarter earnings.

On Sunday, the Federal Reserve cut its benchmark interest rate to near zero and announced its plan to buy $700 billion in assets, including $200 billion in mortgage backed securities. The Fed’s actions have caused mortgage rates to fall to record lows, which could incentive borrowers to buy homes when the coronavirus pandemic ends.

As companies begin to lay off employees, the concern will be whether buyers will have enough money to put down a down payment on a house and make mortgage payments.

Lennar is known for its simple, no frills, affordably priced homes. The company has reported strong earnings in the past few years as a housing shortage has led to strong demand for new single-family homes.

The company reported a strong first quarter with net earnings totaling $398.5 million, or $1.27 per diluted share, compared to first quarter in 2019 of $239.9 million, or $0.74 per diluted share. New orders of homes also increased 18 percent on a year-over-year basis to 12,376 homes in the first quarter of 2020.

House flippers are no longer making a killing, but activity is as high as ever

Home-flipping is at an 8 year high (Credit: iStock)

Home-flipping is at an 8 year high (Credit: iStock)

House flippers aren’t making what they used to, but it seems everyone still wants in on the market.

House flipping activity increased to an eight-year high in 2019 but returns conversely dropped to eight-year low, according to an ATTOM Data Solutions study reported by Housing Wire. ATTOM’s Todd Teta said that was because of cost of buying.

ATTOM Data Solutions’ Todd Teta

ATTOM Data Solutions’ Todd Teta

“This happened as the cost of buying properties continued to rise faster than gains on resale,” he said.

Still, flipping appeared to pay off for many investors. Homes flipped last year made a gross profit of around $62,900 — a 40.6 percent return on their investment compared to their original purchase price. In 2018, they made an average gross profit of $65,000, or a 45.8 percent return.

Competition from well-financed corporate flippers might play a role in shrinking profits. The flipping industry has become increasingly institutionalized over the last several years. As of last year, corporate sellers made up more than 40 percent of flippers.

Some have even started paying rideshare drivers referral fees for spotting potential flips in neighborhoods where rents and home prices are rapidly increasing.

Nearly 246,000 single-family homes were flipped last year using $32.5 billion in financing, a 21 percent increase from 2018, but profits for flippers dropped about 3.2 percent year over year.

Activity increased generally across the country — home flipping rates increased in 64 percent of markets year over year. In total, around 6.2 percent of all sales last year were flips. [Housingwire]Dennis Lynch

One quarter of Americans don’t even know their mortgage rate

Around 27 percent of homeowners who responded to a Bankrate study said they don’t know what the interest rate is on their home (Credit: iStock)

Around 27 percent of homeowners who responded to a Bankrate study said they don’t know what the interest rate is on their home (Credit: iStock)

Mortgage rates hit a three-year low earlier this week, so is it time to refinance? That’s a tough question for one in four homeowners who don’t even know what their current rate is.

Around 27 percent of homeowners who responded to a Bankrate study said they don’t know what the interest rate is on their home, according to Fox Business. A third of homeowners between age 29 and 39 didn’t know their rate and 23 percent of people aged 56 to 74 don’t know their rate, the survey found.

The 30-year fixed-average fell to 3.45 percent this week, nearly a full percentage point below this time last year, and the lowest rate since the fall of 2016.

The lack of knowledge of some homeowners could lead to serious financial consequences for them. Around 11 million people could refinance their mortgages at current rates and save an average of $268 per month. Homeowners with adjustable-rate mortgages could find themselves unprepared for hikes.

Mortgage rates rose through 2018 as the Federal Reserve raised their benchmark interest rate, which heavily informs mortgage rates. That worried builders, who figured higher rates would discourage buyers, particularly those who live in areas with historically high home prices like Los Angeles.
The Fed steadied and then began dropping its interest rate last summer, bringing down mortgage rates with it. The benchmark rate has been 1.55 since November.
Buyer sentiment has been strong this winter, prompting more open houses than usual across the country. Low rates are expected to drive strong activity in the typically slow first quarter. [Fox Business] – Dennis Lynch

US is short nearly 4M new homes: report

The U.S. is short 3.8 million new homes

The U.S. is short 3.8 million new homes

The housing shortage in the U.S. is deepening despite strong demand, and a new report found that builders must construct nearly four million new homes to catch up.

Almost 9.8 million households were formed between 2012 and 2019, but just 5.9 million new single-family homes were constructed during that period, according to listings website Realtor.com.

The report found it could take four to five years to fill the void of 3.8 million homes. That estimate comes even as single-family home construction starts per 1,000 households rose to 7.3 last year from 4.6 in 2012, according to Realtor.com. The eight-year average is 6.2 starts per 1,000 households, which is under the two-decade average.

“We still have a relative lack of supply,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association. “Building has just not kept up with demand for the past several years.”

Because of this deficit, the listings platform predicts existing home sales will drop 1.8 percent this year. And the group expects the median price growth of those existing homes to rise a tepid 0.8 percent.

The demand is there to build more houses. Baby boomers are not leaving their homes and millennials are increasingly starting families, said Morris Davis, real estate professor and academic director of the Rutgers Center for Real Estate in Newark.

But demand for new housing is most pronounced in and around the gateway cities, where there is ample employment, Davis said.

“I do believe places like California and, to a lesser degree New York need an injection of housing to keep up with the demand of people” moving to those areas, he said.

While the country may need to add almost 4 million homes to its inventory, other estimates have found that the need for new homes in California alone could be nearly just as much: The state needs to build between 1.8 million and 3.5 million new homes by 2025 to help tackle homelessness and soaring housing prices.

The nationwide housing shortage is nothing new.

Since 2001 the U.S. has constructed 17.6 million new single-family homes, a figure that has fallen short of the 20.2 million households that have since been created. That translates to a gulf of 2.6 million homes, according to Realtor.com.

At one point in the early 2000s, new home construction outpaced new household growth. But the financial crisis changed that, and builders pulled back. While housing starts picked up again during the economic recovery, growth has been anemic, according to Realtor.com’s report.

Zoning constraints and ballooning construction costs have hampered the construction of both single-family homes and multifamily buildings, said Richard Koss, an adjunct professor at Columbia University who also is chief research officer of mortgage fintech firm Recursion Co.

Still, there are signs that housing production could improve in 2020. Housing starts in December jumped to 1.6 million, marking a 13-year high, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. Just over 1 million of those starts were single-family homes.

But Koss cautioned against looking at one month’s worth of data for substantive change.

“We’ll see in the next couple of months,” he said. “We can always be surprised.”

Write to Mary Diduch at [email protected]

This European city has the world’s fastest rising home price

Budapest (Credit: Pixabay)

Budapest (Credit: Pixabay)

In the elegant Hungarian capital of Budapest, it’s good news for home sellers and not so good news for buyers.

No other city in the world saw prices climb higher than in Budapest in the third quarter of 2019. The price of a home rose 24 percent year-over-year, according to a Knight Frank study cited by Mansion Global.

It wasn’t a fluke for the city of 1.7 million — it topped Knight Frank’s list of highest-risers in the fourth quarter of 2018 and the first quarter of 2019. The report pinned Budapest’s upward trajectory on falling unemployment and growing wages.

That’s four times the rate of the U.S. city with the fastest rising prices, Phoenix, which experienced 6 percent year-over-year growth.

The city of Xi’an in central China overtook it in the second quarter, but fell back to number 2 with 15.9 percent growth in the third quarter. Another Chinese city, Wuhan, ranked third in the world with 14.9 percent growth. Russia’s Saint Petersburg and Moscow were both in the top 10.

Prices rose in 78 percent of the 150 cities included in the report, but the 3.2 percent global average is the slowest since the second quarter of 2015 and a number of top U.S. markets saw growth below that.
New York and Chicago saw prices move up by less than a percentage point. Prices rose 1.7 percent in Los Angeles and 3.1 percent in Miami. Prices fell 0.7 percent in San Francisco.
Prices also fell in some top-tier cities around the globe, including London and Hong Kong. Jerusalem saw the most significant drop, with prices falling 13.6 percent year-over-year. [Mansion Global]