Headwinds mounting as building industry enters 2016
Thursday, January 14, 2016
The year is new, but for homebuilders 2016 is looking a lot like 2015 so far. Early projections foresee continued, if gradual, moderate growth. Demand is high, but a number of mitigating factors continue to dog the industry.
Much depends on whether other areas of the economy will improve enough to give homebuilders the boost they are looking for.
Although December's numbers are not in yet, the industry appeared to be finishing 2015 on an upward trajectory. Housing starts rose 10.5 percent in November, and sales of newly built, single-family homes rose 2.2 percent — the highest readings in seven years for each category, according to the National Association of Homebuilders. The National Association of Realtors reported pending home sales declined in November, but only slightly.
NAHB Chief Economist David Crowe sounded a confident note in October, predicting steady employment and economic growth, pent-up demand, affordable home prices and attractive mortgage rates will keep the housing market on a gradual upward trend in 2016. AIA Chief Economist Kermit Baker shared a similar outlook during an economic forecast Web conference hosted by the Associated Builders and Contractors in November.
Demand for housing remains high.
Surveys conducted by the Harris Poll for Trulia and by the NAR reveal a sustained interest in buying a home. Trulia reports that 75 percent of Americans, including 80 percent of millennials, dream of owning a home — up 1 percent and 2 percent, respectively, from last year. That figure was 87 percent in the NAR survey, and 94 percent for renters age 34 and under.
Yet homeownership remains beyond the reach of many Americans. Compared to last year, says Trulia, fewer adults believe 2016 will be a good year for selling a home or for buying a home.
Concern about rising interest rates, as well as being able to save for a down payment and/or qualify for a mortgage, keep pushing the horizon for buying a home further out for many prospective buyers. For example, 13 percent of millennials say they plan to buy a home this year, but, states Trulia, "that number jumps to 35 percent when the time frame is expanded to the next two years."
Affordability remains a stumbling block as well. Bloomberg Gadfly columnist Rani Molla spoke recently on challenges for homebuilders in 2016. She noted that a shortage of affordable housing is a key factor behind the current historic drop in homeownership across all areas of the industry.
Molla cited data that the higher end of the market, which did well in 2015, was getting priced out. And prices for new homes are now 25 percent higher than those for existing homes — making it difficult for first-time buyers to purchase a new home.
In his 2016 forecast, NAR Chief Economist Lawrence Yun points out that home prices nationwide are expected to increase by 4 to 5 percent in 2016, while household incomes will rise only 2 to 3 percent. He predicts home sales will "struggle to gain a 1 to 3 percent" growth this year, compared to 7 percent last year.
At present, the housing market appears to be caught in a kind of catch-22. Builder confidence is down, according to the NAHB, in part because builders are concerned about the high price of lots and labor, which is being driven by a shortage of each. Yun states the rising cost in home prices is due to homebuilders underproducing, which has left the market with insufficient stock to meet demand.
Meanwhile, potential homebuyers are stuck in the middle. With signs the economy may be weakening as 2016 gets underway, expect to see earlier industry growth projections stepped back to more modest levels.
- Breaking down barriers to make career and technical pathways accessible for everyone
- Millions of high school students set for success: Celebrating Career and Technical Education Month
- Window film improves building system performance
- Interior design is not about flowers
- How COVID-19 might affect the commercial real estate market
- Emerging green building material technologies to watch
- 3-D printing is revolutionizing construction and design fields
- Watch out for these 3 common electrical safety hazards
- How to power up the consent agenda
- A new era for Salt Lake City International Airport
- Churches, ‘COMM’centrate on 6 things
- How has COVID-19 affected crime?
- How to build an eco-friendly, sustainable brand through green tech
See your work in future editions
Your content, Your Expertise,
Your Industry Needs YOUR Expert Voice & We've got the platform you needFind Out How