A staggering 90 percent of home builders say the affordability of new properties is being hampered by rising lumber prices.
The finding came from the latest National Association of Home Builders/Wells Fargo Housing Market Index, where many builders claimed that the higher costs of construction are forcing more prospective buyers to back out of the new home market.
Builders say the main reason for the increased costs is the rise in lumber prices over the last one and a half years. Almost 95 percent of builders say the spike in the price of lumber was impacting the affordability of new homes, with respondents evenly split on whether it was having a “significant” or “minor” impact.
Prices of lumber in the U.S. have increased by 62 percent since President Donald Trump came into power in January 2017, the NAHB’s chief economist Robert Dietz said. He reckons that lumber tariffs have increased the price of the average new home by around $9,000.
Builders say the rising prices may be due to a widespread shortage of lumber. More than 30 percent of single-family home builders reported facing framing lumber shortages, which is the highest figure since the NAHB began tracking this data in 1994.
The problem of housing affordability isn’t just down to lumber prices however. A recent report in The Morning Call states that while lumber is a significant factor, labor shortages and growing regulations are also to blame.
According to the NAHB’s Dietz, homebuilding in many parts of the country is being held back due to a lack of workers, with almost 230,000 building jobs in the U.S. currently unfulfilled.
“Labor has been an issue of the industry for the last four or five years,” he said. “The job openings rate in the construction industry now is actually higher than it was at the peak of the building boom.”
Then there’s the problem of increased building regulations and stricter zoning requirements, which result in both fewer starts and increased costs. Dietz said that regulations add up to around a quarter of the cost of a median-priced home, and more than 30 percent of the cost of an apartment. These costs also restrict builder’s ability to produce homes at the lower-end of the market, which is the price point targeted by most younger buyers.
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected].
It didn’t always feel like it, but 2016 was a pretty good year for the housing market. From Brexit to Trump, there were several surprises, but ultimately, we’re heading into 2017 with a solid footing underneath us.
No one knows exactly what will happen in the new year, and with a new administration taking office in January, it’s not easy to make detailed predictions. However, there are several data points that we can use to point us in the right direction.
So what’s in store for the housing in market in 2017? Here are 5 things to watch out for.
1. Mortgage rates will move higher
The 2016 housing market was fueled by extremely low mortgage rates. We saw rates bottom out last year at near record levels (around 3.5%) after the Brexit vote. Post-election, they’ve skyrocketed over seventy basis points (one basis point = 0.1%), mostly due to expectations that the Donald Trump administration will boost the economy with its infrastructure spending plan. While the quickness with which rates rise might soften somewhat, it’s widely expected for mortgage rates to continue on their ascent next year.
The Federal Reserve’s Federal Open Market Committee (FOMC) just recently raised the benchmark interest rate by a quarter-point for the second time in a decade.
The FOMC will meet at least eight times in 2017, and fed officials have stated that they believe it will be appropriate to raise the federal funds rate around three times throughout the year. It’s true that the FOMC does not directly control the direction of mortgage rates, but it can play a large role in influencing which way rates are headed.
So how high will mortgage rates rise?
It’s not unfathomable to suggest that mortgage rates could be somewhere between 4.75%-5.0% in the fourth quarter of 2017. Long-term interest rate speculation should always be taken with a grain of salt though. Many, many things could happen between now and then.
Click here to get today’s latest mortgage rates.
2. Millennials will buy more homes
In 2016, Millenials (ages currently 18-34) surpassed Baby Boomers as the largest living generation in the United States. While rising mortgage rates might price some of them out of the market, they are still poised to be one of biggest demographics of home buyers (some estimates are saying they will account for up to 33% of home buyers).
Marriage and children are no doubt on the way for many of them, and those are two key life events that often precede the motivation to purchase a home.
One other interesting trend for millennials in 2017 is the decision to settle in the Midwest. Apparently, the affordability and the proximity to big universities is enough of a draw in to keep millennials from heading to the coast.
3. Home price growth will soften
In 2016, home prices rose around an estimated 5%, putting them back to where they were before the housing bubble burst in 2008. While that may be great news for home owners, it’s not something every prospective home buyer is crazy about.
Nevertheless, home prices are expected to continue to rise over the course of the new year, albeit by a slightly lower margin. Zillow’s Chief Economist Svenja Goodell is predicting home prices will increase by 3.6% next year. That’s right about where other economists are predicting, give or take a few basis points.
Of course, in a nation as large and varied as the United States, not every housing market is created equal. Some markets will continue to march forward with strong growth while others will slow down and falter. For instance, cities in the western United States are predicted to outperform their eastern counterparts (just as they did in 2016) next year. As you can see below, five of the top ten cities in the graphic below are located out west.
Taken as a whole, though, home price growth will moderate somewhat compared to 2016.
4. New home construction gets more expensive
The construction industry struggled to find workers in 2016, and that trend is expected to continue. According to the National Association of Homebuilders, there are an estimated 200,000 vacant positions in the construction industry right now.
It’s not just confined to one position either. Employers are finding it extremely difficult to find both entry level and experienced workers alike. With less laborers competing for jobs, companies are forced to raise wages in order to attract talent.
Those extra costs will inevitably get passed on to customers, resulting in an increased cost for new construction. Not only that, this shortage of labor means that fewer houses are being produced.
Wild Cards
Fed overplaying their hand
Not everyone is so optimistic about the housing market and the economy in general. A recent report from the Financial Times shows that many economists are extremely doubtful that the Federal Reserve will wind up proceeding with multiple rate hikes in 2017. Instead, they believe that the Fed will raise rates once at their June meeting.
It’s definitely reasonable to be fairly skeptical of fed rate hike predictions, seeing how some fed officials were touting up to four rate hikes this year and in the end they barely pulled one off.
Doubts about Trump stimulus
While the stock markets surged after Donald Trump came out and stated that he has plans for substantial fiscal stimulus, some experts believe the path ahead won’t be so smooth. Euro Pacific Capital CEO Peter Schiff has come out recently as one of the few economists to question the efficacy of Trump’s plan. Here it is in his own words:
“The Federal Reserve is going to have to step up to the plate big league if Donald Trump is going to want to move forward with the tax cuts and spending increases that he has promised the electorate. That’s where the markets have it wrong. They somehow think that fiscal stimulus is a substitute for monetary stimulus. It’s not. If we’re going to have larger deficits, it’s impossible to finance them unless the Federal Reserve does it. That means they’re going to have to be launching another round of quantitative easing that is much larger than the ones we’ve had in the past. Rather than being dollar positive, this is a negative for the dollar … If currency traders actually understood what was happening, higher inflation is very bad for the dollar because the Fed cannot fight it.”
Bottom Line
Trying to predict the future is often more a mental exercise than it is an actionable guideline. There are just too many unknowns to hang your hat on anything more than several months out. It’s still important to go through the data and try to gain a better understanding of things to come. While there’s no guarantee that any of these predictions will come true, borrowers, investors, and onlookers that are aware of the expectations are better suited to adapt to whatever unfolds in the 2017 housing market.
Data for the graphic via Realtor.com
Carter Wessman
Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.
A lot of people including Jerome Powell who runs the Federal Reserve assume high interest rates will make housing cheaper. They believe that higher rates make houses less affordable and therefore, prices will decrease. There are many things wrong with this line of thinking, but they are missing an incredibly important concept. High rates may cause a temporary drop or leveling off in prices, but over the long term, they are certain to cause higher prices. This is because higher interest rates make it more expensive to build houses. As a result, fewer people and developers will be able to afford to build, which will lead to a decrease in inventory. We already have a massive shortage of houses in the United States which has caused big increases in prices. Reducing building will make that shortage even worse and make prices higher in the future.
Have high rates lowered real estate prices in the past?
Many people including Powell assume high rates make prices drop or level off. This is one of Powell’s quotes from 2022:
“Housing is significantly affected by these higher rates, which are really back where they were before the global financial crisis,” Powell said during a news conference. “The housing market was very overheated for a couple of years after the pandemic, as demand increased and rates were low. The market needs to get back into a balance between supply and demand.”
When he said this, rates were lower than they are now and mortgage rates are much higher than they were prior to the global financial crisis. People were also used to higher rates from the 80s and 90s back then whereas people are used to very low rates now.
However, historically raising interest rates has never lowered housing prices. There are even multiple studies that show high interest rates have never caused prices to drop. The 70s and 80s had some of the highest interest rates in our history and the 70s also had the highest appreciating real estate market in the last 100 years.
High rates make it more expensive to buy homes but they also reduce the inventory because people do not want to sell and lose the lower rate they currently have. High interest rates often reduce sales but not prices. High rates also make many things more expensive.
Here is a video I did two years ago talking about what raising rates would do to the real estate market:
How do high interest rates make building a house more expensive?
Building houses is not easy in today’s government-regulated environment. Building codes and development requirements get stricter by the minute. The harder you make it to build or develop, the higher new construction costs are but that is another topic. Here is why higher rates cause new construction to be more expensive:
Material costs: Almost every company uses debt or sources supplies from companies that use debt. If the cost of debt increases, that means the cost of supplies increase, and prices therefore increase as well. We have seen many supply chain issues with construction materials as well. It is really hard to fix those issues and expand production when the cost of borrowing money is so high.
Labor costs: Labor costs can also increase when interest rates are high. This is because workers will demand higher wages to compensate for the higher cost of living. We hear all the time how inflation has made it tough on the poor and middle class. However, raising wages to battle inflation causes more inflation. Powell has said numerous times wage increases are one of the big causes of inflation.
Debt costs: Most people use debt to build houses and home builders use debt as well. If the cost of debt increases, that increases the cost of building.
How do high interest rates decrease new construction?
Not only do high interest rates increase the cost of new construction, but they also decrease the number of new builds. I mentioned before how prices usually do not decrease with high rates but sales often do. While prices may not decrease, or only decrease for a short amount of time, sales almost always decrease with higher rates. It is harder to sell houses because of the higher rates which makes builders wary to build more. It can take more than a year to build a house and if the builders have a concern about real estate demand, they will hold off and not risk building or building as much.
With higher rates, we also see higher construction costs as discussed earlier. If the price to build goes up, that will also make builders hesitant to start new builds. How can they be sure the market with higher rates will support the higher prices? Historically, the market has supported higher prices even with higher rates but that is still a big risk to take!
The graph below shows single-family new construction starts. We saw record low building for years after the housing crash and we were starting to get back to normal when interest rates spiked. You can see the huge drops in new builds in 2022 and while it has increased some, it is nowhere close to where it needs to be to catch up to demand.
How does less new construction raise prices?
The USA has a housing shortage as do most areas of the world. The governments keep making it harder to build and develop and then wonder why there is less building! If there is a shortage of housing, that means more people are fighting over fewer houses, and that increases prices. The less building there is, the higher prices will go as the population will keep increasing and moving around the country looking for new housing that is not available.
Powell may have thought higher rates would make housing more affordable, but I am not sure if he considered the long-term impact higher rates have. They will most certainly decrease new construction and raise the cost of construction which in the long-term will increase prices. The longer rates are high, the worse the problem will get. Ever heard the term kicking the can down the road? They may not want to lower rates now because a buying frenzy could ensue, but the longer they wait the worse they are making the problem.
How to find a great contractor.
Conclusion
Overall, higher interest rates are likely to have a negative impact on the construction industry. This is because they will make it more expensive to borrow money, finance projects, and hire workers. As a result, we can and have seen a decrease in new construction which will make the inventory problem worse, which will most likely make housing even more expensive in the future.
The seemingly unstoppable rally in homebuilding stocks may face a few potential roadblocks ahead.
In recent months, the group has been notching record after record, posting their best first half in almost a decade. Homebuilders even rose during the pandemic, stumbling just briefly in 2022, before regaining traction. The cohort is also outperforming the broader market — up more than 50% year-to-date versus the S&P 500’s 18% gain.
Still, analysts warn to watch for factors that could threaten the sector’s growth.
“Builders are in the business of building shelter capacity,” said Carl Reichardt, a homebuilders analyst a BTIG. “Shelter capacity right now is very low. So the headwind to the group is if shelter capacity that isn’t bought by the homebuilders increases.”
So far, new homes being built by companies like D.R. Horton Inc. and Lennar Corp. have been snatched up by buyers. The activity has helped drive up each firm’s shares by more than 40% year-to-date.
However, their fortunes could diminish somewhat if dynamics in the existing home market shift, according to Reichardt, who added that a drop in rental prices could entice potential homebuyers into short-term leases instead of splurging on new houses.
A dip in interest rates could also disrupt housing market dynamics, he noted. The Federal Reserve’s aggressive monetary policy tightening campaign has dissuaded homeowners from moving, leading prospective buyers to seek new homes. That’s sent existing-home sales lower in nearly every month since the start of last year.
Rates Mystery
Eventually, the central bank will start to cut rates. While the timeline of that easing remains unclear, a decline in borrowing costs could reinvigorate existing homeowners to place their homes back on the market, introducing more inventory.
“Ironically, if rates went significantly lower from here, it could juice demand a little bit, but you also might have a lot of competition coming in from the resale side of things,” Oppenheimer & Co. analyst Tyler Batory said.
Some builders, including D.R. Horton and KB Home, target first-time homebuyers who would feel the effects of any financial burden. While the U.S. labor market has remained resilient, a wave of layoffs could dent the number of homebuyers, according to Batory. Additionally, the resumption of student loan payments might leave consumers with less cash on hand for big purchases like a house, he said.
According to a report from Redfin last month, first-time homebuyers need to earn 13% more than a year ago to afford the average US starter home. Another report from the real estate brokerage showed that the average U.S. homebuyer’s monthly mortgage payment is up almost 20% from a year ago as rates remain elevated.
Investors are being vigilant by seeking protection against declines in the group. Based on open interest, SPDR S&P Homebuilders ETF and iShares U.S. Home Construction ETF had the first- and third-largest put-to-call ratios, respectively, among exchange-traded funds with active options trading on Friday, according to data compiled by Bloomberg.
Of course, there’s always risks, said Batory, but all things considered, “It’s going to be fine. I think you have a multi-year earnings growth story.”
National lender and construction-loan specialist American Financial Resources announced Monday it had agreed to the business’ sale to an investment group led by a Denver-based fund manager.
The Parsippany, New Jersey-based mortgage company who offers wholesale, correspondent and consumer-direct channels, will sell 100% of the business to Proprietary Capital, whose institutional platform gives investors exposure to the residential mortgage market and related assets.
“With the support and investment of Proprietary Capital, AFR will begin a new phase of rapid growth that will directly benefit our borrowers, wholesale and correspondent clients, and employees,” said American Financial CEO Rich Dubnoff in a press release.
Stratmor Group served as an advisor to AFR in the sale. Terms of the acquisition were not disclosed and are subject to state and regulatory approvals.
Originally founded in 1997 by current chief administrative officer Corey Dubnoff, AFR found a specialized niche within the mortgage industry by offering several different types of loan products supporting homebuilding, including single-close construction-to-permanent, renovation and manufactured home mortgages. The company also offers non-QM products, in addition to conventional and government-sponsored loans.
Also founded in 1997, Proprietary Capital has focused on delivering returns to investors primarily through various segments of the U.S. residential mortgage market. “With the acquisition of AFR, we will build on our already strong mortgage platform,” said Craig Cohen, managing member of the alternative investment management firm.
“With the addition of AFR’s robust operational platform, loyal customer base, long-term dedicated employees, and their breadth of products and services, we will catapult our growth for many years to come,” Cohen added.
AFR’s deal adds another transaction to the growing list of mergers and acquisitions that have emerged in the past 12 months. While the majority of deals have ended up combining nonbank home lenders, the timeline of events also involves agreements between insurance companies, servicers, secondary market platforms and fintechs and other mortgage technology providers.
Meanwhile, the home lending industry continues to follow developments of the proposed merger between technology giants Black Knight and ICE Mortgage Technology. This week the deal scored a win when the Federal Trade Commission dropped its case against the companies. They had previously agreed to offload Black Knight assets, including the Empower loan-origination system and product-pricing engine Optimal Blue.
Data from the July jobs report released Friday fell roughly in line with expectations. Job gains came in lower than both the 278,000 monthly average for the first half of 2023 and the 399,000 average of 2022. Total nonfarm payroll employment increased by 187,000 jobs, compared to 209,000 in June, according to data released by the Bureau of Labor Statistics.
The unemployment rate changed little at 3.5%, compared to 3.6% in May, with the total number of unemployed persons falling to 5.8 million. The unemployment rate has remained between 3.4% and 3.7% since March 2022.
In June, job openings eased back to 9.6 million, bringing the openings rate to 5.8%. Meanwhile job quits slipped to 3.8 million or 2.4%.
“The incoming economic data continue to convey conflicting signals about the strength of the economy. Indicators of manufacturing and service sector health remain lackluster, measures of inflation have moved lower, while GDP growth in the second quarter was stronger than expected and consumer spending remains resilient,” said Mortgage Bankers Association VP and Deputy Chief Economist Joel Kan.
While job growth is weakening, and wage growth is holding steady, both metrics are still above the pace that would be consistent with the Federal Reserve’s inflation target, noted Kan.
“However, we expect that the FOMC will hold the federal funds target at its current level given the declining trend in inflation,” he added.
The lion’s share of the job growth in June came from gains in health care (+63,000), social assistance (+24,000), financial activities (+19,000), and wholesale trade (+18,000), according to the report.
Employment in the construction industry continued to trend up in July, adding 19,000 jobs, especially in the residential construction space. The ongoing shortage of housing inventory helped spur an increase in home building and home improvement activity, Kan said.
On average, the industry added 16,000 jobs per month in the second quarter of the year, after employment was essentially flat in the first quarter. Over the month, a job gain in real estate and rental and leasing (+12,000) partially compensated for a loss in commercial banking (-3,000).
Furthermore, residential building construction employment was flat year-over-year in July, while non-residential was up by 5.9%, according to First American Economist Ksenia Potapov. Compared with pre-pandemic levels, residential building employment is up 10%, while non-residential building is up 3%.
“Like June, the fastest monthly growth came from residential specialty trade contractors. This sub-sector comprises establishments whose primary activity is performing specific activities, such as pouring concrete, site preparation, plumbing, painting and electrical work,” said Potapov.
Employment in the professional and business services sector and in the leisure and hospitality sector changed little in July.
What’s next ?
At the July Fed meeting, the FOMC hiked the benchmark rate by a quarter percentage point, as widely expected. During the press conference that followed the meeting, Fed Chair Jerome Powell said that another rate hike in September is “certainly possible,” but so is a pause.
According to Realtor.com‘s chief economist Danielle Hale, today’s report is unlikely to sway the Fed.
“Today’s jobs report is unlikely to change those odds significantly as it is one of several pieces of additional data that the Fed will have to consider before the next decision. The Fed will see not only an additional jobs report, but also two more readings each on consumer prices and producer prices along with several other indicators before its September 19-20 meeting and decision,” said Hale.
On the housing market, she said that conditions are still favorable for households, supporting housing demand. However, climbing mortgage rates remain a substantial obstacle for homebuyers. Hale expects more “coping strategies” on the buyer’s end, such as moving further away to find affordability. Another outcome will be that affordable markets, such as those in the Midwest, will continue to see an outsized level of housing activity for both homeowners and renters, she said.
As existing homeowners remain rate-locked into their homes with no financial incentive to move, homeowners are likely to increasingly turn to renovating their homes to suit their evolving needs, added Potapov.
Zurich-based startup HEGIAS has developed the world’s first browser-based, VR CMS for the construction and real estate industries. Having just passed $1 million in funding, the innovators expect to snag another $1.9 million by March of this year.
Virtual reality (VR) is now all the rage in proptech as the technology moves forward to be integrated into every facet of our lives. This latest innovation from the Swiss startup HEGIAS promises to transform parts of the real estate business, as can be seen in the video below.
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Founded by Marty (Pam) Patrik, Tuan Nguyen and Andreas Schmeil in 2017, HEGIAS has now developed the world’s first browser-based, automated virtual reality content management system (CMS) for the industry. Filling a huge void where for architects, construction companies, homeowners, brokers, and interior designers, the new tech will streamline workflows and reduce overall miscommunication and mistakes in projects. Furthermore, the HEGIAS solutions are a world apart for cost-effectiveness, the company says their innovations are as much as 100 times cheaper than current high-end visualizations technologies for the industry. HEGIAS also says their solutions will be faster thanks to the automation aspects.
The developers are currently focusing tightly on the construction industry because of the high-quality 3D data is already available in this sector. This is a bright move since marketing of properties often begins long before projects are completed. So, the Swiss platform can help increase initial vacancy rates by showing unbelievable VR visualizations to clients. We spoke briefly about HEGIAS’ upcoming releases with Pam Patrik, who added this assurance:
“HEGIAS will launch the world’s first browser-based high-end virtual reality content management system by the end of March 2019. Our initial product offering will be focusing on the real estate market, planning industries, and architects.”
According to the news, the funding is being used to complete the CMS for its international launch, and to promote further developments. HEGIAS 1.0 has been tested in pilot projects with customers like PS/Wincasa, Implenia, Swisscanto, and a specialised VR/CMS project for Shopfitting with Jegen AG.
HEGIAS is a member of SwissPropTech, and is advised by digital game change expert Adrian Wildenauer, Senior Construction Management Consultant at pom+, a leading business consultancy for real estate, construction, facility, portfolio and asset management in Europe.
In the days to come, we will try and interview Wildenauer or company CEO Marty (pam) Patrik.
Phil Butler is a former engineer, contractor, and telecommunications professional who is editor of several influential online media outlets including part owner of Pamil Visions with wife Mihaela. Phil began his digital ramblings via several of the world’s most noted tech blogs, at the advent of blogging as a form of journalistic license. Phil is currently top interviewer, and journalist at Realty Biz News.
From the outside, the rows of tile-roof houses in a new community in Menifee don’t look much different from those in other subdivisions cropping up in this fast-growing city in Riverside County. But on the inside, these all-electric homes are revolutionary, offering a glimpse of the zero-emission future we should be hurtling toward to fight climate change and adapt to its effects.
All the houses in the Durango and Oak Shade at Shadow Mountain communities, two adjacent KB Home subdivisions I visited in May for an opening event, were built without natural gas hookups or appliances. Each of the 219 homes comes with rooftop solar panels, heat pumps for heating and cooling, induction cooktops and other energy-efficient electric appliances, and a smart electrical panel that manages energy use. In the garage is a battery storage system that can power the home during an outage and in the evenings when the cost of electricity from the grid is higher.
They’ll also soon be connected to a shared community battery storage facility the size of a shipping container that’s a backbone of a system known as a microgrid. It will allow residents to disconnect from the electrical grid during an outage, and use the backup power to keep their lights on for a few days.
I expected these homes to come with a premium price tag, given their futuristic amenities. But they start around $520,000, and a 2,900-square foot, four-bedroom, two-bath Spanish-style home recently sold for about $590,000. Buyers aren’t paying extra for technology that would otherwise cost $30,000, according to the homebuilder, because the project was subsidized by a $6.65 million U.S. Department of Energy grant.
The homes have other energy efficiency features such as spray foam insulation under the roof to help cool the attic and the living space below. The houses are essentially “like a Yeti cooler,” as one official with SunPower, the company that provided their solar and battery-storage systems, told me. That’s life changing in this corner of Riverside County where summer days often exceed 100 degrees and utility bills climb painfully high.
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After spending a few hours checking out the homes’ energy-smart features and listening to company and government officials talk up their climate-friendliness and resilience, I was almost envious. The people moving into these houses are living in a world that, for now, remains a distant reality for most Californians for whom a fossil fuel-free home is still very much a pipe dream. And it highlighted how much work there is yet to do by state officials to ensure all Californians start to benefit from home electrification as that need becomes increasingly obvious in a world altered by climate change.
Underscoring that feeling for me was a remark by a California Energy Commission official in attendance, who noted that new construction accounts for less than 1% of the state’s housing stock in any given year.
California has 14 million homes and builds only about 110,000 new housing units a year. So even if all new homes are built with at least one electric heat pump, as the Energy Commission expects, that would account for only about 8% of all homes by 2030, 14% by 2040, and 20% by 2050. That’s not anywhere near fast enough to slash climate-warming emissions, which means that most of this transition will have to happen by replacing appliances in existing homes.
For now, California remains heavily dependent on fossil fuel in daily life, especially the methane gas that powers the majority of home appliances. For most of us, the transition to zero-emission electric living will be far more complicated, messy and slow than buying a new home.
The furnaces, stoves, clothes dryers and water heaters in our homes and businesses may not seem like big polluters individually, but they all add up to a lot. Buildings are one of the biggest emissions sources in California, responsible for about 25% of its climate pollution. But California still lacks the kind of straightforward zero-emission targets for buildings that it has already adopted for other major pollution sources like electricity generation and new cars.
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Because home appliances like furnaces and water heaters can last 15 years or longer, scaling up action over the next few years is critical if we are to get on a path to zero out greenhouse gas emissions by midcentury and avert catastrophic levels of climate change.
A recent report by Rewiring America, an electrification-focused nonprofit organization, found that to meet those climate targets the U.S. has to dramatically increase the pace of replacing fossil-fueled appliances and cars over the next three years. That would mean purchasing about 14 million more electric heat pumps, water heaters, stoves, rooftop solar systems and electric vehicles above what’s expected.
While California has some laudable goals, including Gov. Gavin Newsom’s target of installing 6 million heat pumps by 2030, state officials acknowledge that much greater numbers will be needed to put California on track to achieving a carbon-neutral economy by 2045.
State air quality regulators plan to end the sale of new gas-fueled furnaces and water heaters by 2030, and the Inflation Reduction Act and its array of consumer rebate and incentive programs should help bring down the cost of replacing them with electric heat pump models. But state leaders need to establish clear and ambitious targets for home electrification, while pursuing creative solutions such as establishing a neighborhood decarbonization programto retrofit entire low-income communities with electric appliances and infrastructure at the same time.
There are reasons for optimism, including the home construction industry’s embrace of electric technology. Heat pumps are doing particularly well, now accounting for more than 50% of the market in new construction.
But I’ve also encountered troubling stories that make me really concerned about the slow and uneven pace of change. I’ve heard from homeowners struggling to turn their houses all-electric and their travails through a thicket of contractor resistance, government red tape and other obstacles. I’ve spoken to community leaders who fear that low-income tenants and other disadvantaged groups will end up shouldering most of the burdens of electrification, like higher utility bills and rent increases landlords are likely to impose to pay for electrical upgrades. I’ve covered legal setbacks and fossil fuel industry resistance operations that are hindering the transition to healthier, gas-free homes.
At my family’s 1950s-era tract house, I want to replace the gas water heater, furnace, dryer and stove with heat pump and induction models as soon as we can afford to. But I know that will be a long, expensive journey with no shortage of complications — and electrical work.
For now, our entry point is a $100 countertop induction cooktop we’ve started to use instead of our gas burners. It boils water faster and doesn’t pollute the air, but draws so much electricity that we can’t turn on other kitchen appliances at the same time or it overloads the circuit.
Whether we rent or own or have a new or historic home, everyone should be able to live in an efficient, non-polluting and climate-ready dwelling even if it wasn’t purpose-built for an all-electric world like the new construction in Menifee. None of us should have to wait decades for that to be our reality too.
Zillow is forecasting an end to housing inventory problems, but we may have to wait a while for it to happen.
The
company says it expects to see “flood of homes” coming onto the
market over the next twenty years. Those homes will primarily be
existing homes currently occupied by baby boomers, which will be sold
off once their owners pass away.
The Baby Boomer generation, once 76 million strong in the U.S., dwarfed the 55 million Gen-Xers and 62 million Millennials it immediately preceded. Today, about a third of America’s homes are owned by those 60 and older, and a new Zillow analysis shows the impact their aging will have on the housing market.
The
“Silver Tsunami”, as Zillow calls it, is estimated to hit in
earnest as the number of seniors aged 60 or older who pass away each
year rises during the 2020s and 2030s. In the decade from 2007 to
2017, roughly 730,000 U.S. homes were released into the market each
year by seniors aged 60 or older. From 2017 to 2027 and from 2027 to
2037 that number is set to rise to 920,000 and 1.17 million per year,
respectively. This means more than 27% of today’s owner-occupied
homes will become available by 2037.
While
virtually all areas will feel the effects to some degree – between
one-fifth and one-third of the current owner-occupied housing stock
was impacted in every metro analyzed – this wave won’t hit all at
once and won’t strike all markets equally.
Retirement
hubs like Florida and Arizona are likely to feel the sharpest impact.
If demand erodes because fewer people choose to retire there in the
coming years, those areas might end up with excess housing. Also
heavily impacted will be regions like the Rust Belt, which saw
younger people move away in recent decades, leaving older generations
to make up a larger share of the population.
Some
regions will be far less affected. These include Salt Lake City,
where a much smaller share of homeowners are in their golden years,
as well as Atlanta, Austin, Dallas and Houston – all of which are
vibrant but relatively inexpensive places that tend to attract
younger residents looking for an affordable alternative to expensive
coastal cities.
Still,
the differences in the share of homes released by seniors among
metros are small compared to the differences within them. Palm
Springs, for example, will see 45% of its owner-occupied homes
vacated by 2037, compared with 23.8% of the combined L.A.-Riverside
metro area overall. El Mirage and Sun City figure to see nearly
two-third of their homes available, compared with 28.2% of the
Phoenix area at-large.
Housing
released by the Silver Tsunami – upwards of 20 million homes
hitting the market through the mid-2030s – will provide a
substantial and sustained boost to supply, comparable to the
fluctuations that new home construction experienced in the 2000s
boom-bust cycle. Whether this housing is appropriately located,
priced and styled to meet future demand will be an important factor
in how it pairs with new construction to alleviate today’s housing
shortage. It seems likely that the construction industry in the
coming two decades will place a greater emphasis than before on
updating existing properties.
Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected]
Nondepository hiring in housing finance bounced back a little in May after falling to a point where it looked like a lot of the overcapacity in the market had been removed.
Representative estimates for nonbank mortgage banker and broker payrolls inched up to 343,800 from an upwardly revised 341,100, according to the Bureau of Labor Statistics. The small gain came almost entirely from lender additions while broker numbers plateaued.
The mortgage hiring in May — which is typically a seasonally strong period for housing — and June’s broader employment gains (which are reported with less of a lag than the industry-specific stats), bode well for the industry in some respects, but lenders remain wary of uncertainties around rates.
“If employment is too strong, the Fed is going to have to continue to raise rates,” said Melissa Cohn, regional vice president at William Raveis Mortgage, after a private payroll report from ADP registered unusual gains Thursday.
This concern drove mortgage rates to a 2023 high this week. Economists had mixed views on whether the overall job gains in BLS numbers reported Fridaty were tepid enough to convince policymakers not to keep putting upward pressure on financing costs.
“The weaker job market combined with decelerating wage growth and calming consumer price inflation are clear indications for the Federal Reserve to stop raising interest rates,” said Lawrence Yun, chief economist, National Association of Realtors, in a report Friday.
Mike Fratantoni, chief economist at the Mortgage Bankers Association, took a different view of the overall jobs number, which was reported with less of a lag than mortgage industry estimates and showed 209,000 positions added in June with a historically low 3.6% unemployment rate.
Fratantoni expects the Federal Open Market Committee to raise short-term rates at its next meeting.
“While job growth and wage growth are trending down, both are still well above the pace that would be consistent with the Federal Reserve’s inflation target. We now expect that the FOMC will raise the federal funds target another 25 basis points at its July meeting,” Fratantoni said.
In addition to rates, another wild card for mortgage industry hiring is whether demand for homes will keep outpacing supply in a way that sustains interest in new purchases.
So far it has, if hiring by builders is any indication, according to Odeta Kushi, deputy chief economist at First American.
“The construction industry is very interest-rate sensitive, so many expected job growth to crater. Yet, new-home construction has been supported by the lack of existing-home inventory,” Kushi said Friday, noting that June employment in the residential sector was up 0.8% annually.
It’s possible that some of the demand in this part of the job market could trend away from new homes and toward renovations, which maintains demand for labor, but may diminish purchase mortgage activity and potentially add to home-equity or renovation loan interest, she added.
“With existing homeowners rate-locked into their home and with not enough homes on the market, consumers may decide to renovate their own home instead of trading up,” Kushi said.