Housing Industry News…brought to you by StrucSure Home Warranty
Our recap of recent housing headlines leaves only one verdict: What’s next still remains to be seen!
“Now is the time to pause and let current restrictive monetary policy finish the job,” says NAHB, referring to the Fed’s continual raising of interest rates to ensure that inflation is contained.
Slowing Economy Brought on by Tighter Monetary Policy
The Federal Reserve held interest rates steady in September, while also indicating it still expects one more hike before the end of the year and fewer cuts than previously indicated next year.
Freddie Mac reports an average rate of 7.23% for the 30-year mortgage, the highest level since 2001. This means Americans now need to spend as much as 43% of their income to afford a home, according to analysts. With shelter inflation accounting for a staggering 90% of the overall inflation rate over the summer, NAHB is calling on policymakers at all levels of government to take actions that will help boost the nation’s housing supply in order to ease a stubbornly high housing inflation rate that is harming the overall economy.
AD&C rate hikes further fan the flame in the housing affordability crisis. The contract interest rate was higher in 2023 Q2 than it has been at any time since NAHB began collecting the data in 2018 on loans for Acquisition, Development & Construction (AD&C). NAHB reported that AD&C interest rates rose from 8.50% to 8.62% on loans for land acquisition, from 8.19% to 8.70% on loans for land development, from 8.10% to 8.37% on loans for speculative single-family construction, and from 7.61% to 8.18% on loans for pre-sold single-family construction.
“The Fed should want to avoid tightening too much, which is now the greater risk,” warns NAHB. Since the August high point, interest rates have moved lower and additional data points indicate cooling consistent with some disinflation. The 10-year Treasury rate moved below 4.2% as labor market data indicated declines for the total number of job openings for the U.S. economy and the construction sector.
Home Sizes Shrink as Buying Power Diminishes
Home size increases in 2021 are attributed to the COVID-19 pandemic. With people spending more time at home, they wanted more space for offices, gyms and classrooms. Mortgage rates reached historic lows during this time period and property values rose, giving buyers more borrowing and purchasing power to invest in building a new home or remodeling their existing home.
But as interest rates increased in 2022 and housing affordability worsened, the demand for home size has trended lower. 2023 data from a Census Quarterly Starts and Completions by Purpose and Design report shows that the median single-family square floor area declined to 2,191 square feet, the lowest reading since the end of 2010.
Nearly a Third of Home Sales Are New Construction
The San Antonio, Dallas-Fort Worth and Orlando metropolitan areas have the nation’s tightest housing supplies, according to analysis from the Bank of America Institute. This chronic low inventory of homes for sale is leading many prospective buyers to consider building their own residence.
New research from Redfin reports that newly built single-family properties comprised a record share of the market, making up nearly one-third of housing inventory nationwide. Redfin predicts that new home sales will rise 12.3% this year and 13.9% in 2024. Investors like Warran Buffett see the trend and seek to capitalize on the opportunities arising from the limited housing supply. Buffett reportedly pulled back on his other stock investments to bet big on homebuilders, investing a combined $814M across D.R. Horton, Lennar and NVR. D.R. Horton stock was reported to up 38.8 percent this year, Lennar is up 36.7 percent, and NVR is up 35.2 percent.
What’s necessary and what’s merely going to add more costs must be weighed in code hearings and legislative rulings.
Certainly, the ratcheting up of building standards every three years is necessary to create continually safer, healthier, and more resilient structures. But new regulations have to be balanced with careful consideration about increased costs to comply with them. And the same holds true for regulations that impact permitting time and costs. A builders added time combined with those rising AD&C rates are passed on to the bottom line of the home price. And remember NAHB’s statistic: With every $1,000 increase in the median home price, more than 140,000 families are priced out of the market.
2024 IPC and IMC Guidelines Released as part of 2024 I-Codes
On average, 3000 new code changes come with every three-year code cycle. The International Code Council is hard at work analyzing updated climate maps and reviewing catastrophic events in making decisions about code updates as it works on the forthcoming 2024 editions of the International Codes® (I-Codes).
New waste management requirements in the 2024 International Plumbing Code (IPC) include provisions for support of buried piping beneath buildings where expansive soil conditions exist, vacuum testing of Drain Waste Vent (DWV) piping, and standards for chemical waste piping and fitting materials. Among the new water conservation measures, showerhead flow is limited to 2.0 gallons per minute (gpm).
The International Mechanical Code (IMC) establishes minimum regulations for mechanical systems using prescriptive and performance-related provisions. One significant change in the 2024 IMC is its removal of language that prohibits the use of domestic ductless range hoods. Other IMC changes. Refrigerant requirements, alarm requirements for leak detection monitoring, increased outside air requirements and new requirements for exhaust system common ducts are also specified by the new code.
Each state has its own timeline for the building code adoption process, which is determined by the legislature, government agency, building code board, or building code commission. State code adoption occurs through either legislative action or regulatory agency actions. In Texas, the building code adoption process then takes place at the local level.
Revised WOTUS Rule Still Ambiguous
Made with no public input from interested stakeholders, the revised Waters of the United States (WOTUS) rule represents a blow to housing affordability and sets the stage for continued federal overreach, says NAHB.
“The Supreme Court’s Sackett decision made clear the federal government only has authority over relatively permanent waterbodies. But the Biden administration failed to provide a definition of a ‘relatively permanent’ waterbody. Furthermore, the revised WOTUS rule fails to exclude from federal jurisdiction all ‘ephemeral features,’ which only possess water following a rainfall event,” said NAHB’s response to the amended final WOTUS.
Industry leaders concur that the uncertainty regarding what waters are subject to federal jurisdiction delays the wetlands permitting process, adds confusion for home builders and land developers, and increases costs at a time when housing affordability is a critical issue.