Falling mortgage rates have put some wind back into existing home sales, but new home purchases are taking on water.
“The key issue is housing affordability,” said Robert Dietz, chief economist at the National Association of Homebuilders. “Single-family home sales will be flat this year.”
Dietz, speaking Thursday at the National Association of Real Estate Editors annual conference in Austin, said lower mortgage rates, combined with a continued pivot by builders to more affordable housing products, should help lift new home sales in the second half of the year following a decline the past two months in Census Bureau counts.
Affordability remains a big drag on the market, with much of California, the Pacific Northwest and Colorado’s northern Front Range ranking among the most unaffordable areas in the country, according to an index from the NAHB and Wells Fargo.
Dietz cited the usual suspects on why new homes cost so much to build. Labor shortages continue to plague the industry, which had 404,000 unfilled jobs in April. Despite those shortages, the industry has failed to boost its productivity.
U.S. workers overall produce 30 percent more for every hour they work compared to 1993. But in the construction industry, productivity hasn’t improved. Modular and panel construction methods that could lower costs are used in only 4 percent of new homes, Dietz said.
But there is a catch-22 in adopting them. Assembling components in a factory might save on construction labor, but truck driver shortages remain severe, which would hamper deliveries.
Dietz also noted that regulatory costs, which are more concentrated on the front-end in the development of lots, have continued to rise since 2011 — up 29 percent for single-family and 32 percent for apartments.
He estimates that builders should be putting up 1.1 million new single-family homes a year. He forecasts they will start 872,000 this year, down from 873,000 last year.
A survey from Freddie Mac, which provides guarantees on mortgage loans, found a lack of affordability in housing is shaping consumer behaviors in significant ways.
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More than half of those surveyed reported having to cut spending on both essential and non-essential items to keep a roof over their heads.
Younger renters, in particular, said they were getting squeezed by child care costs and student loan payments. Among renters struggling to keep up, 44 percent said they had moved in the past two years in search of greater affordability. That is up from 30 percent early last year.
About 35 percent of homeowners struggling to make their mortgage payments said they had moved in the past two years to improve their situation, up from 26 percent a year earlier.
Around 82 percent of renters now view renting as the most affordable option available to them, up from 67 percent who held that position in February of 2018, according to Freddie Mac. That sentiment could impede home sales going forward.
