REAL ESTATE
U.S. Construction
As discussed in Chapter 7 of our publication When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology (available on Amazon), and several previous blogs, the purchase of a home may be one of the biggest decisions, and investments, to make in one’s lifetime. Over the last few years, it has never been more difficult for young buyers, with rising inflation, property prices, and property taxes/insurance, and the situation appears to be only getting worse, with an increasing number of defaults and loans coming due.
Most home owners, especially first-time buyers, are not in a financial position to purchase a property fully in cash, or a newly built home, which are generally more expensive than existing homes. They also require a mortgage to spread out payments over time, and must qualify to be accepted for a long-term loan anywhere from 15 to 30 years generally.
The recent influx of population into the United States over the past few years (and in certain countries around the world) has created a logjam in housing. These faster than normal conditions over that time frame has created many issues, including rising homelessness. The basic concept of supply and demand has subsequently pushed prices higher, doubling, and/or tripling in some geographical areas, highly affecting affordability.
As a result, many areas have risen to an extent that has caused an outflow of residents who can no longer afford to reside in the areas they have lived in for decades. In addition, as these individuals move to once “cheaper” housing areas, they too have experienced a large increase in price. Unfortunately, the need for more housing does not translate to any immediate fix, based on the these noted factors, and the time it takes for the process to physically construct. Permits, regulations, and capital, and even some shady business can often delay the progress. Defaults have also become an issue, unfortunately, for those stuck in “underwater” mortgage conditions.
That brings us to current building and construction conditions across the country. Though building can also be seasonal in some bad weather areas, and springtime is upon us in most states, construction was slow through the month of February. Figures did rise about 0.6% in March as residential building improved, though commercial did not. Construction spending also improved, year-over-year (YOY), by about 1.6%, led by single-family homes, which is also a good sign for the struggling industry. Homebuilding is often a “leading indicator” for the economy, as it slows significantly when approaching a recession and higher interest rate periods, and surges prior to economic boom/lower interest rate conditions.
The “projected” outlook for the longer-term is estimated at 5.1% YOY, however, a portion of that figure is dedicated to the increasing Data Center construction, which does not help the average individual searching for affordable housing. These structures also require a considerable amount of energy to operate, further increasing the real cost of a home with rising utility costs. Many areas are meeting resistance from residents regarding the building of these structures. Searching for an area that does not allow these centers may be more cost efficient.
Some negative aspects to the building industry include harsher regulations, increasing days on the market for existing homes for sale, and now rising interest rates once again. If properties are not selling due to unaffordability, the building pace will decrease. Furthermore, the data provided by the National Association of Realtors (NAR) is sometimes lagging and does not reflect the “true” state of the current market. “Location, location, location,” has always been the main factor in the decision to purchase a home, and that has not changed.
Please visit the website www.augustassociatesllc.com for home values, listings, and professional assistance.
***As always, this information is not intended to be financial advice, or any specific buy or sell recommendation, but rather a guide to assist the reader in some further understanding of current economic conditions.
