NAHB Briefs: March 2007

A LOOK INTO THE FUTURE

Imagine that you've gone back in time to 1915. The average price of a new home is $3,200 ($64,158 in 2006 dollars), there are 4.5 million people over the age of 65, and the nation's population has just passed the 100 million mark.

Five decades later, in 1967, the nation's population has doubled to 200 million. A new home is priced at $24,600 ($149,147 in 2006 dollars), and 19.1 million people are aged 65 or over.

Only 39 years later—in 2006—the population has increased by another 100 million. According to the Census Bureau, a typical new home costs $290,600, and a record 36.8 million people are 65 or over.

So what does this information mean to us?

First, the nation's population is growing rapidly, and the pace of growth continues to speed up. It took 52 years for the population to double from 100 million to 200 million but less than 40 years for it to grow by another 100 million to today's record of 300 million. And the Census Bureau estimates that the population will reach 400 million in 2043.

You have only to look at the aging of the baby boomers to know how well our industry can respond to such demands. As the baby boomers grew up and began forming new households, they first drove multifamily construction to record levels, then focused the market on entry-level housing, and later demanded larger and increasingly luxurious trade-up housing.

And this generation will continue to have a profound effect on the housing market. According to “The State of the Nation's Housing 2006,” the annual report by the Joint Center for Housing Studies of Harvard University, “The growing population of older Americans will intensify demand for second homes, retirement communities for active older adults, and housing that provides personal care and other services for frail seniors.” It also notes that “older empty-nest households will fuel demand for higher-end, trade-up homes requiring little maintenance.”

But what will drive the “non–baby-boom” segments of the market, and what do we need to know to plan for the years ahead?

According to the Census Bureau, minorities—particularly Hispanics—will account for much of the population growth in upcoming years.

Already the nation's largest minority group with a population of 42.7 million or 14 percent of the total, Hispanics are also the fastest-growing minority group. Bolstered by significant immigration, the Hispanic population will rise to 102.6 million, or 24 percent of the population, by the middle of 2050, according to the Census Bureau.

And the Hispanic population is young, with a median age of 27.2 compared with 36.2 for the population as a whole. Moreover, almost a quarter of the nation's population under the age of 5 is Hispanic.

At 39.7 million, blacks, the nation's second largest minority group, make up 13.4 percent of the population. In 2050, the black population will stand at 61.4 million—or 15 percent of the nation's population—according to Census Bureau projections.

The homeownership rates in 2005 for Hispanics and blacks, at 49.5 percent and 48.8 percent respectively, lag significantly behind the homeownership rate for whites, which was almost 76 percent in 2005.

The Joint Center notes that “in large measure, the stubbornly wide homeownership gap reflects the rapid growth in young minority households. Because young households have lower homeownership rates than older households, they bring down the overall rate for minorities.”

Obviously, as the population continues to grow, the demand for new homes and rental housing will continue to grow. And affordability will continue to be a crucial element in the housing equation. But many of the customers we serve are likely to be different from those who have come into our sales offices and purchased our products in the past. It is also likely that the products they prefer will be different from those that dominate the market today.

Brian C. Catalde, PRESIDENT, NAHB WASHINGTON, D.C.

Beware the Vacant Overhang

Statistics fail to show the true number of vacant houses posing a threat to future new-home sales.

Generally favorable economic and financial market conditions, together with price cuts and widespread use of non-price incentives by sellers, led to convincing stabilization of both gross and net (gross less cancellations) single-family home sales toward the end of 2006. Furthermore, standard measures of unsold housing inventory have shown some improvement in recent months.

Despite those favorable market signals, builders must realize that the single-family inventory overhang is a good bit larger than the standard measures portray and that the composition of the true inventory overhang has serious negative consequences for the housing supply-demand balance going forward.

When sales contracts on existing (previously owned) homes are cancelled, the homes generally are re-listed and thus reappear in measures of existing homes for sale (as they should). But when sales contracts on new homes are cancelled, the government's data system does not allow those homes back into the measures of new homes for sale. Nor do those homes get into the National Association of Realtors' measure of existing homes for sale. They simply fall though the measurement cracks!

The NAHB's survey of builders shows that cancellations of new-home sales increased dramatically from mid-2005 through the summer of 2006, particularly at large builders. And although cancellation volume began to taper down late last year, seasonally adjusted cancellation rates still were riding quite high as the year drew to a close.

The government says that 454,000 unsold new homes under construction or completed were in the hands of builders at the end of 2006, a five month's supply at the December sales pace. That's a historically high inventory overhang, but inclusion of the homes left with builders through cancellations would make the historical comparison much more serious—since the 2005–2006 run-up in cancellations was world-class.

Completed new homes for sale by builders (including those left with builders though cancellations) obviously are vacant units. In the market for existing previously owned homes, for-sale units typically are occupied at the time of listing. Thus, a sale of an existing home typically releases a household to purchase or rent another housing unit—a turnover process that represents vitality in the housing market and that generates the dominant source of demand for new homes. On the other hand, vacant existing homes for sale definitely worsen the supply-demand balance in the overall single-family market.

The number of vacant for-sale units in the existing housing stock has climbed considerably during the past two years, particularly in 2006. This is largely a legacy of the unprecedented surge in home buying by investors/speculators during the housing boom of 2004–2005. In fact, the Commerce Department reports that 1.554 million single-family homes were vacant and for-sale at the end of 2006, implying that 1.382 million were in the existing-housing stock—440,000 more than two years earlier.

The current overhang of vacant homes for sale (new plus existing) may not be the end of the story. The single-family rental vacancy rate recently climbed to a record level, presumably reflecting difficulties being encountered by investors that are biding their time before reselling single-family homes back onto the markets.

It's hard to estimate the number of single-family rental units that will become for-sale units, or the time frames involved, but builders should listen for this shoe to drop. There's also the issue of competition from the multifamily condo market, where the number of vacant for-sale units (new and existing) has climbed even more dramatically than in the single-family market. Stay tuned!

David F. Seiders, CHIEF ECONOMIST, NAHB WASHINGTON, D.C.

The Best Builder Resources Online

The NAHB Research Center's educational program presented at the 2007 IBS updates builders on valuable online resources.

During the 2007 International Builders' Show (IBS), the NAHB Research Center presented “The Best Online Resources for Building Technologies,” an educational program aimed at updating builders on many of the most useful and time-saving resources available online. Because helpful information can easily get lost in the shuffle of all that's available on the Web, this program makes clear what resources are available online, the different services they offer, and how they can be used.

According to the program, nearly all builders use the Internet in some form. However, many may just be scratching the surface of what the Internet has to offer them. For example, search engines are among the Web's most valuable resources—offering language tools that can be useful to builders with contractors who are not fluent in English. Users can paste text, such as instructions, into a form that will quickly translate it, or type in the URL for a Web site that they want to translate.

RSS feeds are another time-saving, online tool for builders who want to stay informed but don't have time to browse several sites each day. RSS users can have new information automatically delivered to them in a format that allows them to quickly scan dozens of headlines that are targeted to their interests.

The Research Center's online resource, ToolBase.org, makes accessing these resources easy by housing specific links to popular search engines, news, and trade industry Web sites, including sites for public and private organizations, universities, and industry associations.

In addition to making other information sources available, ToolBase.org also continues to offer a wealth of information on building technology, traditional and green home building, mold and moisture, and energy efficiency from the Partnership for Advancing Technology in Housing (PATH), HUD, the NAHB, and others. Visit www.ToolBase.org/IBS07webresources.

NAHB Briefs

Ever wonder what makes some properties more expensive than others or why a home in one part of town can cost much more than the same home in another part of town? A new online model lets you plug in a variety of home and location characteristics to find out which ones mean more money and which ones don't. To show the effects that various features can have on a home's value, the NAHB housing economics department has created a house price estimator model based on data from the American Housing Survey, a nationally representative survey of about 60,000 housing units conducted by the U.S. Census Bureau in odd-numbered years. The house price estimator results are based on the value of a “standard” home in each Census region. To learn more about the house price estimator or to explore the price effects of house features and location characteristics, check out the model online at: www.nahb.org /estimator.

The NAHB Multifamily Stock Index (MFSI) dipped again in December as the index continues to fall back from the record highs set throughout most of 2006. The December numbers, released in late January, dropped 111 points—about 3 percent—from the November MFSI to an index value of 3,521.

The MFSI tracks the stocks of 23 publicly traded firms, including 20 Real Estate Investment Trusts, principally involved in owning, developing, and managing multifamily housing.

“A downswing in housing starts and residential construction activity concentrated in the single-family sector took a heavy toll on economic growth during 2006,” says David Seiders, the NAHB's chief economist. “The multifamily sector held up relatively well, although producers have been shifting gears to construct fewer condo units.” Seiders adds that he does not expect the condo sector to stabilize until at least later this year.

As concerns over energy and the environment remain at the forefront of our nation's important issues, an increasing number of new-home builders have shifted their focus to improving the energy and environmental performance of their homes. A group of 11 such home builders were honored for their contributions on Feb. 7, 2007, with the EnergyValue Housing Award (EVHA) presented at the 2007 International Builders' Show. Each year, the EVHA program recognizes a new group of visionary builders who have voluntarily integrated energy efficiency into the design, construction, and marketing of their homes and demonstrated successful approaches to energy-efficient construction.

The NAHB is proud to announce the Innovation in Workforce Housing Awards (IWFHA). These awards are designed to recognize outstanding examples of workforce housing communities that provide decent and affordable homes for nurses, police officers, teachers, retail workers, and the like, near their places of work.

IWFHA is open to builders, architects, designers, developers, and land planners nationwide. To be eligible for entry, a community must have been completed, had its first model opened, or had its first unit occupied between Jan. 1, 2004 and Oct. 27, 2006. To enter, please visit www.nahb.org.