Wednesday, September 17, 2014

Trouble Brewing for New Home Construction

Is there trouble brewing on the horizon for new home construction? Probably.

But how can that be if most of the East Coast modular home factories have 4 – 5 week backlogs? The answer to that on is easy. Hurricane Sandy and multi-family housing projects. For the rest of the country, you are just beginning to feel the pinch of the housing downturn, especially modular home factories building mostly single family homes.

Is Modcoach running around telling everyone the sky is falling? Am I shouting ‘fire’ in a movie theater? Absolutely not but what I am saying is that you need to be aware of what is coming our way.

TOP FIVE CAUSES for housings’ slowdown.

Builders on the front lines say there’s no single cause for the worsening housing outlook, rather a number of market forces are hitting home builders at once:

The perplexing millennial generation — Millennials have shown far less interest in buying single-family homes than those who came before. Instead, young workers are increasingly pursuing rental or non-traditional housing, options that don’t show up on building permits and contribute far less to the economy than new home construction.

Tightening supply of homes — Though housing starts are falling, the demand for homes hasn’t gone away. While year-to-date new home closings are falling, the median price is rising. People still need housing but many are unwilling to pay the price for a newly built one.

New mortgage rules — The tightening supply can be traced in part back to new lending rules created in the wake of the Great Recession that made it tougher for home buyers to qualify for mortgages. Those same rules also apply to developers, who must fight their own battle to secure financing for any project.

Regulatory costs — Tightening the building codes every year along with additional state and local regulations are causing many homes and projects to be delayed. Expect to see Net Zero to be a requirement for every new home in the US within the next 10 years.

Rise of apartments — Even without the higher cost of development, the single-family home market faces increasing competition from thousands of new maintenance-free luxury apartments built over the last few years, many of which now offer the same amenities of owning a home without the weight of a 30-year mortgage.

These are just the top five causes. Dig a little deeper and soon you will be running next to me shouting “The sky might be falling, the sky might be falling.” Its time for regulators, lenders and government to realize that by tightening their grip on new housing they are slowing choking it to death.


Kyle said...

How are millenials perplexing? We rent because that's all we can afford to do. We already owe enough money on our student loans anyway, so a mortgage is right out. And the job situation, hooo boy. Even if we could afford a house, who would want to buy one when you might have to move in a few years anyway?

Bill said...

I couldn't agree more and when you factor in the cost of property taxes. new home buyers have a target on their backs. The sky may very well be falling!

Anonymous said...

Kyle is absolutely right. Millenials are coming out of college with the loan equivalent of a mortgage already. We can't afford another, and are forced to make due with whatever we can manage as far as housing is concerned. It's a bad situation for everyone.