New-Home Costs Rising at Unparalleled Rate

Inflation is pushing up homebuilding costs at an unprecedented rate, according to Bank of America’s Who Builds the House? report. Supply-chain disruptions and labor shortages are adding pressure to rising prices.

The average cost for materials to build a single-family home jumped 42% from 2018 to 2021, adding thousands of dollars to the price of a new home, according to the report. The median sales price of a new home in April reached a record $450,600, a 20% hike from a year earlier, Commerce Department data shows.

The higher material costs have been passed along to home buyers, who are facing the double whammy of rapidly rising mortgage rates. First-time buyers, in particular, are increasingly becoming priced out of the new-home market, with only about 10% of new homes in April on the market priced at less than $300,000, according to the National Association of Home Builders. A year prior, that share was 25%.

As buyers back away from the new-home market, builders are slowing production. Housing starts have fallen to a 13-month low, and single-family construction dropped 9.2% in May, according to the Commerce Department.

“Residential construction material costs are up 19% year over year, with cost increases for a variety of building inputs, except for lumber, which has experienced recent declines due to a housing slowdown,” says NAHB Chief Economist Robert Dietz. What’s more, “The increase for mortgage rates for the first half of 2022 has priced out a significant number of prospective home buyers.”

Some builders are reducing their prices. For example, the share of new-construction homes with price cuts has quadrupled compared to a year earlier in metro areas like Austin, Texas, and Nashville, Tenn., according to Redfin data. Price cuts in new construction have tripled in Phoenix and doubled in Tampa, Fla.

Stuart Miller, executive chairman of homebuilder Lennar, told CNBC that he expects prices will readjust moving forward due to higher mortgage rates, which have nearly doubled over the past year. Rising material costs combined with accelerating mortgage rates have left buyers facing “a little sticker shock, and that will likely lead to a pause … and then some reconciliation,” he said. “But there is still a housing shortage across the country. We’ll adjust prices as need be. … Pricing may come down a bit to accommodate affordability. But America still needs homes, and we’ll continue to fill that void.”

Building Material Woes Continue

Framing lumber and engineered wood have experienced the largest price increases among materials, according to the Bank of America report. Lumber prices have been volatile over the past year; prices hit an all-time high in 2021, adding $18,600 to the average cost of a new home, according to the NAHB. However, lumber prices have fallen in recent weeks and are trading at yearly lows, though they are still higher than in 2020. Still, housing analysts say it likely will take time before consumers see any savings due to the price dip.

Other material costs in home construction also have contributed to rising prices, such as upticks in concrete, flooring and paint. The price of exterior paint jumped 14.5% in the first five months of this year, the NAHB notes. Window and door shortages, which have been blamed for many construction delays, also have added to costs. The plumbing sector has been hit hard by a labor shortage that is also leading to delayed timelines, builders note.

Further, inflation is adding to consumer costs in household furnishings, which saw prices climb 9.3% annually in January, according to the Labor Department. Appliances were up 8.5%, and floor coverings up 7.2% in the same time period.

©National Association of REALTORS®
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NAR Earns Green Business Bureau’s Platinum Certification for Sustainability

The National Association of REALTORS® has earned the Green Business Bureau’s platinum certification for sustainability—the highest level awarded—in the first year the association applied for the honor. Only one in five companies that apply meet the requirements to earn the GBB’s platinum certification.

As a trusted authority in green business, GBB provides online solutions to help purpose-driven businesses of all sizes learn, prioritize, manage and certify green initiatives. Their customers use their sustainability framework and solutions to engage employees, manage their sustainability programs and become greener. GBB’s certification process is entirely initiative-based, so companies will receive points for each and every activity it completes. Initiatives are organized by the business area they impact, such as transportation or office materials, and further marked by the effort, cost and greening impact of the initiative.

Certification through membership with GBB highlights NAR’s commitment to sustainability leadership among members, associations and industry groups, underscoring one of NAR President Leslie Rouda Smith’s 2022 strategic priorities and meeting goals laid out in NAR’s Sustainability and Resilience Plan to monitor and measure activity in this space.

Check out NAR’s GBB certification profile, including the rated categories and specific sustainability actions.

Learn more information about NAR’s overall sustainability efforts at nar.realtor/sustainability.

©National Association of REALTORS®
Reprinted with permission

Mortgage Rates Settle In the 5% Range

Mortgage rates appear to be settling in the 5% range after recent dramatic climbs that shocked home buyers. The 30-year fixed-rate mortgage averaged 5.13% this week, down slightly from its 5.22% average a week ago, Freddie Mac reports.

Mortgage rates peaked at 6% in early June, which prompted a pullback in housing demand. However, “home sales may soon stabilize since mortgage rates have fallen to near 5%, thereby giving an additional boost of purchasing power to home buyers,” says Lawrence Yun, chief economist for the National Association of REALTORS®.

Inflation appears to have peaked, which has stopped the rapid increase in mortgage rates, says Sam Khater, Freddie Mac’s chief economist. “The market continues to absorb the cumulative impact of the large price and rate increases that led to a plunge in affordability,” Khater says. “As a result, over the rest of the year, purchase demand likely will continue to drag, supply will modestly increase and home price growth will decelerate.”

Total mortgage demand fell to its lowest level in 22 years last week, the Mortgage Bankers Association reports. A big contributor is falling refinance applications, as homeowners have less incentive to refinance due to higher rates. Still, mortgage applications to purchase a home are 18% lower than a year ago as more buyers step away due to higher mortgage rates and inflation, the MBA reports.

Freddie Mac reports the following national averages with mortgage rates for the week ending Aug. 18:

• 30-year fixed-rate mortgages: averaged 5.13%, with an average 0.8 point, falling from last week’s 5.22% average. Last year at this time, 30-year rates averaged 2.86%.
• 15-year fixed-rate mortgages: averaged 4.55%, with an average 0.7 point, dropping from last week’s 4.59% average. A year ago, 15-year rates averaged 2.16%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.39%, with an average 0.3 point, dropping from last week’s 4.43% average. A year ago, 5-year ARMs averaged 2.43%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage.

©National Association of REALTORS®
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Builders Concerned About Sudden Pullback in New-Home Market

Builders say more buyers are backing out of sales contracts for new homes as traffic fizzles, causing homebuilder confidence to drop for the eighth straight month, the Commerce Department reported Tuesday. Single-family home construction last month declined 10% annually, matching the lowest level since the onset of the COVID-19 pandemic in 2020, according to the data.

There has been a dramatic pullback in homebuyer demand this year, for which builders blame rising mortgage rates and material prices. The average cost to build a new home has jumped 35.7% since January 2020—an expense that gets passed to buyers—according to the Commerce Department. Ongoing supply-chain problems also are delaying construction projects, and inflation is adding to homebuyer angst.

Jerry Konter, chairman of the National Association of Home Builders, characterizes the current market as a “housing recession.” About one in five home builders reported reducing their prices in the past month to increase sales and limit the number of buyers canceling contracts, according to NAHB data. Single-family housing starts are expected to post a decline in 2022, which would mark the first decrease since 2011, says NAHB Chief Economist Robert Dietz.

Any Hope on the Horizon?

At the same time, there are growing signs that inflation is peaking and long-term mortgage rates are stabilizing. Lawrence Yun, chief economist for the National Association of REALTORS®, says the persistent housing shortage should keep buyer demand elevated in all real estate sectors over the long haul. “Homebuilders are naturally very cautious about rising unsold inventory during the construction phase,” Yun says. “But those completed homes are finding buyers within three months, which is relatively swift for the new-home market. Improving conditions within the supply chain for the delivery of items such as lumber and appliances will lessen overall uncertainty.”

Lower mortgage rates in the near future also could help. “If mortgage rates remain near 5%—after reaching 6% in early June—there could be renewed buyer activity and additional inventory declines,” Yun says.

Meanwhile, the multifamily market, which includes apartment buildings and condos, continues to be a bright spot for housing. Though starts for multifamily construction projects dipped slightly in July, Yun brushed off the decrease as a reflection of month-to-month volatility rather than a long-term trend. Indeed, multifamily construction activity is on pace to reach its highest level in more than 30 years, says Yun. “Rapidly rising rents are economic incentives for building rental housing,” he adds.

©National Association of REALTORS®
Reprinted with permission

What Climate, Health Care Bill Doesn’t Do

President Joe Biden signed the Inflation Reduction Act into law Tuesday, a sweeping climate, healthcare and tax bill that spares affordable housing investment and other real estate from the most feared new taxes. The $784 billion legislation allows Medicare to negotiate prescription drug prices, invests billions of dollars into clean energy and imposes a 15% minimum tax on corporations with more than $1 billion of earnings. A portion of the revenue raised also will go toward deficit reduction.

But the law excludes an array of tax measures on real estate investment proposed last year. “When discussions began on the original Build Back Better plan, there were nearly a dozen tax changes that could have decimated our efforts to increase the supply of affordable housing,” says Shannon McGahn, NAR’s chief advocacy officer. “After spending more than a year educating lawmakers on these proposals, a bipartisan consensus emerged that they weren’t a good idea, and none of the harmful tax changes made it into the final bill.”

Last year, NAR launched a comprehensive action plan to advocate for affordable housing supply. A study commissioned by NAR showed the U.S. is 5.5 million housing units short and that it could take more than a decade to fill that gap—even with accelerated new construction. “A supply shortage of this magnitude requires an all-of-the-above response,” says NAR President Leslie Rouda Smith. “We are working toward zoning reform, money for new construction, expanded financing options and tax incentives to spur investment, convert unused commercial spaces to residential and increase the supply of construction workers. And our efforts are building consensus that decisive action is needed.”

In March, the White House included a historic funding request for affordable housing in its budget proposal. Then, in May, thousands of REALTORS® descended on Washington, D.C., and hand-delivered to Congress a comprehensive list of actions they could take to address the housing shortage. Also, in May, the Biden administration released a Housing Supply Action Plan. In July, the Treasury Department allowed the use of $350 billion in American Rescue Plan funds for developing, repairing, and operating affordable housing units.

“We aren’t just working with Congress and the administration,” McGahn says. “We’re also working with industry partners and agencies on a wide array of initiatives to expand homeownership—such as the Black Homeownership Collaborative’s 3by30 plan to add 3 million net new Black homeowners by 2030.”

©National Association of REALTORS®
Reprinted with permission

10 Most Affordable Lake Towns

Lakefront homes may offer home buyers a chance to buy a waterfront property at a more affordable price than a vacation home on the ocean. Some of the least expensive lake towns may not be as well-known, but they offer house hunters a chance to live on the water and still enjoy the activities and views that go along with that.

“There has been a steady uptick in the number of people seeking out homes in lake towns over the past few years,” Glenn S. Phillips, CEO of Lake Homes Realty, based in Hoover, Ala., told realtor.com®. “Many of those [buyers] seek out the more rural lake towns where homes may be relatively more affordable than at larger lakes or at lakes near cities.”

Realtor.com® researchers analyzed more than 11,000 lake towns to rank the most affordable waterfront areas for 2022. They factored in affordability by analyzing median home list prices over the past year but also factored in other metrics like the number of restaurants and entertainment venues. Researchers limited their rankings to just one city per state to ensure geographic diversity.

1. Sulphur, Okla.: $224,000 (median home list price)
2. Spirit Lake, Iowa: $301,000
3. Watertown, S.D.: $315,000
4. Winsted, Conn.: $260,000
5. Ketchikan, Alaska: $420,000
6. Lake Placid, N.Y.: $279,000
7. Sandusky, Ohio: $158,000
8. Ashland, Wis.: $146,000
9. Cheboygan, Mich.: $248,000
10. Lake Ariel, Pa.: $307,000

Source: 

Realtor.com®

©National Association of REALTORS®
Reprinted with permission

Mortgage Rates Rocket Back Above 5%, But Market ‘Stabilizing’

Home buyers are having difficulty gauging opportunities to save on a property purchase as mortgage rates become more volatile. The average for the 30-year fixed-rate mortgage swung above 5% again this week, clocking in at 5.22%, Freddie Mac reports. Last week, the average for the 30-year fixed-rate mortgage was 4.99%. However, rates may not go much higher: Lawrence Yun, chief economist for the National Association of REALTORS®, says falling inflation in July may suggest mortgage rates are topping out.

“Although rates continue to fluctuate, recent data suggest that the housing market is stabilizing as it transitions from the surge of activity during the pandemic to a more balanced market,” says Sam Khater, Freddie Mac’s chief economist. “Declines in purchase demand continue to diminish while supply remains fairly tight across most markets. The consequence is that house prices likely will continue to rise, but at a slower pace for the rest of the summer.”

The National Association of REALTORS® reported this week that housing affordability decreased precipitously in the second quarter, driven by a sharp rise in rates and double-digit home price increases. The average monthly mortgage payment on a typical existing single-family home (assuming a 20% down payment) climbed to $1,841, marking an increase of $444 compared to the first quarter.

Households are spending 24.3% of their income on mortgage payments, up from 16.9% a year ago, according to NAR data. First-time home buyers are getting hit hardest, typically spending about 37% of their household income on mortgage payments. Most financial experts consider households to be cost-burdened when they spend more than 25% of their income on housing.

Freddie Mac reports the following national averages with mortgage rates for the week ending on Aug. 11:

• 30-year fixed-rate mortgages: averaged 5.22%, with an average 0.7 point, rising from last week’s 4.99% average. Last year at this time, 30-year rates averaged 2.87%.
• 15-year fixed-rate mortgages: averaged 4.59%, with an average 0.7 point, increasing from last week’s 4.26% average. A year ago, 15-year rates averaged 2.15%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.43%, with an average 0 point, increasing from last week’s 4.25% average. A year ago, 5-year ARMs averaged 2.44%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining a mortgage.

©National Association of REALTORS®
Reprinted with permission

Possible Economic Downturn Likely to Be Mild

The country isn’t officially in a recession yet, despite two consecutive quarters of national contraction of the gross domestic product, a commonly cited indicator of an economic downturn, says Lawrence Yun, chief economist for the National Association of REALTORS®. And several healthy economic trends, including a robust job market, coupled with new efforts to boost affordable housing could stave off a more serious slump, Yun adds.

New guidance from the Treasury enabling state and local governments to use leftover emergency COVID-19 funding from the American Rescue Plan to create affordable housing should help ease the inventory crisis and counteract the effects of a tightening economy. Still, there are questions about whether the U.S. has entered “stagflation,” a period of high inflation combined with an economic slowdown, as many Americans feel the frustrating effects of a slower economy and higher consumer prices. But the National Bureau of Economic Research, the council that watches over U.S. business cycles, has yet to declare a recession, Yun notes.

There are two major factors at work counteracting current economic conditions:

1. Job creation is robust. Total payroll jobs were over 150 million in early 2020 before the onset of the pandemic, Yun said at NAR’s Real Estate Forecast Summit last week. While COVID-19 shutdowns precipitated a steep decline in jobs, each month showed strong job creation after the restrictions were lifted. Though there is variation across the country, Yun says, the job market has largely recovered. “We are essentially at the same level of jobs and W-2 employment now compared to pre-COVID days,” he said. Data from the Bureau of Labor Statistics shows that right now, there are more job openings than unemployed people. As of June, there were 5.9 million workers searching for jobs and over 10 million job openings. So, while high unemployment typically characterizes a recession, “the ratio [today] is almost two to one,” Yun said. “It’s a very unusual recession—if we are in one.”
2. Commercial real estate is growing. Though a recession typically means bad news for commercial properties, the commercial market as a whole is flourishing despite a stagnant office sector, Yun writes in a recent REALTOR® Magazine column. Rental demand is booming, and rents are up significantly. Demand for warehouse space has surged as retailers stock up to avoid supply chain disruptions. Hotel bookings, air travel and park attendance are now above pre-pandemic levels. All of this increased activity has led to high demand for new commercial construction. “The improving construction sector means that any recession will be mild,” Yun said.

Despite the positive economic signs, falling homes sales remain a concern. “Home sales are down largely because mortgage rates have risen sharply,” Yun said at last week’s event. “If interest rates rise further, then home sales will decline even more—even if there is no recession.” One long-term solution is to increase housing supply, which is why the Treasury’s announcement is meaningful. The change in ARP guidance could mean significantly more funds going to housing supply and a reduction in costs for buyers over time. Another factor that will help in the short term is employers finding a way to match workers to openings and fill jobs, Yun said. “We still need workers. In an environment with rising mortgage rates, what will drive homes sales is jobs.”

©National Association of REALTORS®
Reprinted with permission

Grants Aim to Inspire More Women Real Estate Leaders

The Women’s Council of REALTORS® wants to inspire more women to take on leadership roles in the real estate industry through its Supporting Women of Real Estate grants, which provide local and state REALTOR® associations funding for new and innovative programs aimed at advancing women.

While women make up more than 60% of the real estate profession, they don’t hold nearly that same level of representation in leadership positions.

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WCR recently announced 10 recipients of 2022 Supporting Women of Real Estate grants, which provide $2,500 each to help local and state associations organize one-day conferences that focus on encouraging more women leaders. “We are pleased to have worked with the National Association of REALTORS® over the past few years to provide over 30 REALTOR® associations grants that provide new and innovative programs focused on advancing women in the real estate industry,” says 2022 WCR President Sylvia Seabolt. “The program goals include inspiring women professionals to take on greater leadership roles in both business and organized real estate.”

This year’s grant recipients have numerous events planned in the hopes of sparking greater interest among women to elevate to leadership positions. Here’s what’s on tap for a few of the winners:

• The Placer County Association of REALTORS® in California is planning to host a one-day event that will feature a panel of women industry leaders who will share on topics like building a team, becoming a broker, running an office and creating a powerful support network of other REALTORS® for career advancement.
• The Prescott Area Association of REALTORS® in Arizona will host a one-day conference to celebrate the successes of its women leaders throughout the state and to inspire others by providing the opportunity to build greater professional relationships, including through a “speed networking” activity.
• The South Shore REALTORS® in Massachusetts will use its grant to host an event called “Women’s Leadership Symposium: Accelerate. Advance. Achieve.” The one-day event will feature sessions from successful women in real estate who will speak on the challenges, pitfalls and successes that have impacted their diverse career journeys. The sessions also will cover topics on leadership, public speaking, advocacy, showing value in negotiations, work-life balance and discrediting the superwoman “I-can-do-it-all” myth.

The Supporting Women of Real Estate grant recipients for 2022 are:

1. Madera Association of REALTORS® (California)
2. Oregon REALTORS®
3. Pikes Peak Association of REALTORS® (Colorado)
4. Placer County Association of REALTORS® (California)
5. Prescott Area Association of REALTORS® (Arizona)
6. Richmond Association of REALTORS® (Virginia)
7. South Carolina REALTORS®
8. South Shore REALTORS® (Massachusetts)
9. Spokane Association of REALTORS® (Washington)
10. Tacoma-Pierce County Association of REALTORS® (Washington)

Learn more about the Women’s Council of REALTORS® and its programs at WCR.org.

©National Association of REALTORS®
Reprinted with permission