Category: Development

Homebuilders growing very concerned about affordability

Still, builder confidence increased for second month in a row

Homebuilder confidence continued to rise in October despite increasing affordability issues due to rising material prices and ongoing shortages, according to the latest National Association of Home Builders (NAHB) and Wells Fargo Housing Market Index (HMI) report released on Monday.

The report is based on a monthly survey of NAHB members, in which respondents are asked to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes. Scores for each component of the survey are then used to calculate an index where any number over 50 indicates that more homebuilders view conditions as good than poor.

Sentiment among homebuilders for newly build single-family homes rose four points in October to 80, the index’s highest reading since July 2021. Confidence among homebuilders began to steady in September, as the index rose one point after a three-month decline. While this October reading is positive, it is still 10 points lower than the index’s all-time high set in November 2020.

NAHB attributes this increase to strong consumer demand for homes. As housing inventory remains low and buyers are continuing to face strong competition with one-third of homes going under contract within a week, many are becoming discouraged and have started looking for alternative options.

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4 ways parking garages are prepping for fewer cars

Developers are planning for a high-tech future that requires greater flexibility

The rise of ride-hailing, autonomous vehicles, and micro-mobility devices such as electric scooters are set to lower rates of car ownership among younger generations.

This, alongside increasing electric vehicle ownership, has building owners and architects thinking about parking garages and how they will need to adapt.

“The forecast demand for electric vehicles is increasing,” says Mike Bammel, Managing Director and National Practice Lead, Renewable Energy, JLL. “Existing properties may not have capacity or capabilities to handle it.”

Read on for four ways garages around the world are already starting to change.

They aren’t just for cars

Parking garages are being built for a future where people drive less, which means designing structures that can support the possibility to be turned into something else, like retail space or a theater.

For instance, a garage in AvalonBay Communities Inc.’s 475-unit multifamily complex in Los Angeles’s Arts District will have higher-than-average ceilings; flat floors, unlike the slanted foundation you find in most parking garages; and elevators and staircases are in the middle of the structure, not on the perimeter. The project is due to be completed in 2022.

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Homebuyers aren’t seeing savings from falling lumber prices – here’s why

Lumber prices hit a record high on May 7, at $1,670.50 per thousand board feet on a closing basis.

The price of lumber on the futures market has given up all of its gains for this year, falling by more than 50% in just the last few months. Homebuilders, homebuyers and homeowners looking to remodel, however, are not seeing savings yet.

Lumber prices hit a record high on May 7, at $1,670.50 per thousand board feet on a closing basis. That was more than six times their coronavirus pandemic low in April of last year.

The spike was due to sudden soaring demand and low supply both due to the pandemic. Saw mills closed at the start and did not ramp up production quickly enough to meet the new demand from builders and remodelers. Homebuyers and homeowners alike wanted more space, and that meant more lumber.

Now demand for remodeling is falling, as people spend more money on vacations instead. Homebuilders are still seeing strong demand, but they have slowed construction due to high costs. Saw mills have gotten back on line, but many are having issues finding enough labor.

Lower lumber prices are a welcome sign but not a reality yet on the retail side. Lumber prices are also still up nearly 100% from the spring of last year.

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Top 10 Markets for Construction Activity

The metros on the list account for 39 percent of the nation’s total pipeline, according to Yardi Matrix data.

Despite volatile market conditions in the past year, the multifamily sector remained a solid performer, with continued rent growth and steady development activity across the country. While developers experienced some construction delays due to the lack of construction materials and rising costs, multifamily projects continued to break ground.

Nationwide, some 864,000 units across 4,059 properties were under construction as of May, according to Yardi Matrix data. Of these, 121,783 units broke ground between January and May 2021. The total number of apartments underway in the 10 metros on the list represents nearly 39 percent of the country’s development pipeline. The table below utilizes Yardi Matrix data to highlight the top markets for development in terms of units under development.

RankMetroUnits Under ConstructionPercentage of Existing Stock
2Washington, D.C.43,2937.9%
3Miami Metro39,80712.8%
7Los Angeles28,2376.4%
8New York28,0204.9%
9San Francisco24,9299.4%

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5 Reforms for Cities to Increase Affordability

Salim Furth, senior research fellow at Mercatus Center at George Mason University, discusses barriers to building more affordable communities and highlights a few easy-to-implement solutions to alleviate housing affordability issues.

When the pandemic hit, the U.S. was already going through a major affordability crisis. The rising cost of living and continuously growing income disparity have led to millions of Americans being priced out of the housing market.

The solution to a more affordable housing market seems to be simple: more housing. But the barriers to building more affordable properties, however, seem to be relentlessly increasing instead of disappearing. High land and construction costs, outdated zoning regulations, and slow and burdensome permitting and approval systems are some of the challenges developers usually deal with.

In fact, a recent study from Mercatus Center at George Mason University found that the escalation of land use regulations is the major obstacle in creating more affordable cities. “In recent years, the proliferation of land-use regulations has limited development, and it has threatened the income mobility and rising standards of living that come with development,” researchers noted.

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Apartment Developers Scout Adaptive Reuse Possibilities

That math will become easier for developers if more distressed properties become available at a steep discount.

It’s too soon for most developers to sign a contract to buy a failed hotel—but apartment developers are watching and waiting for prices to drop to buy other property types damaged by the economic crisis to redevelop into multifamily buildings.

Even before the crisis, apartment developers were eager to buy well-located properties like old office towers and empty malls that they could transform into apartments. The chaos of the pandemic caused most of these developers to pause and wait for new opportunities, such as distressed hotels available at a discount.

“There is just little interest on the part of developers to jump into anything like that at the moment,” says Jim Costello, senior vice president for data firm Real Capital Analytics, based in New York City. “Assets are not being sold at substantial discounts … yet.”

Hotels may be the fastest conversions to apartment

However, at least a few redevelopers have leapt to buy hotel properties—6 percent of hotel assets bought in the second quarter of 2020 were acquired with the intent to redevelop or convert the properties to a new asset class, according to Real Capital. This rate of purchase for redevelopment was twice the average rate seen in a second quarter between 2014 and 2019.

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Homebuilder sentiment posts biggest monthly surge ever, a sign housing is rebounding from coronavirus

Builder sentiment jumped a striking 21 points in June to 58, the largest monthly increase ever in the National Association of Home Builders/Wells Fargo Housing Market Index.

A faster-than-expected turnaround in homebuyer demand, following a sharp drop-off at the start of the coronavirus pandemic, has the nation’s homebuilders bullish on their business again.

Builder sentiment jumped a striking 21 points in June to 58, the largest monthly increase ever in the National Association of Home Builders/Wells Fargo Housing Market Index. Any reading above 50 indicates a positive market. In April, it plunged a record 42 points to 30.

“As the nation reopens, housing is well-positioned to lead the economy forward,” said NAHB Chairman Dean Mon, a homebuilder and developer from Shrewsbury, New Jersey. “Inventory is tight, mortgage applications are increasing, interest rates are low and confidence is rising.”

Meanwhile, mortgage applications to purchase a newly built home jumped 10.9% annually in May, according to the Mortgage Bankers Association.

Of the homebuilder index’s three components, current sales conditions jumped 21 points to 63. Sales expectations in the next six months rose 22 points to 68. Buyer traffic more than doubled from May to June, from 22 to 43. This last component was surprising, given how many builders reported more online inquiries and virtual tours during the pandemic.

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COVID-19 Creates New Barriers for Developers

The outlook for construction and development has been thrown into deep uncertainty by the COVID-19 pandemic.

The economic disruption due to the extensive social distancing measures being taken nationwide in response to COVID-19 has been severe. That’s including bringing a halt to some construction projects already in progress as well as delaying ones that further down the pipeline that had not yet broken ground.

New York City has been Ground Zero for the pandemic in the United States. And while construction initially continued after the first wave of shutdowns, now most work has been halted, putting the city’s $66 billion construction industry in limbo. Many other states and municipalities, however, have allowed construction to continue as essential businesses even amid stay-at-home orders.

Still, given the massive slowdown in economic activity along including the jaw dropping addition of 16 million Americans to unemployment roles has thrown many projects into question. Developers are reassessing both current and future projects amid the uncertainty that will greet them when they come online.

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Only 3 major metros saw new construction increases in 2019

However, remodel activity is increasing in most large cities

While February’s Housing Market Index revealed a small dip in homebuilder confidence, the overall takeaway is that sentiment levels are still high.

In fact, according to the National Association of Home Builders and Wells Fargo, the last three monthly readings mark the highest sentiment levels since December 2017.

The latest Housing Health Report from BuildFax reflects that. The housing data and analytics company released its latest report on Tuesday and stated that year-over-year increases in single-family housing authorizations exceeded 6% from December 2019 to January 2020. The trailing three-month outlook grew 6.8%, according to the report.

“Housing activity has started on strong footing this year, which should be welcome news for the broader economy. The housing market, which accounts for a substantial portion of U.S. GDP, has the potential to drive increased growth, providing a balance to any concerns of a sluggish market heading into 2020,” BuildFax Managing Director Jonathan Kanarek said. “While we’re still experiencing some growing pains regarding the recent housing shortage, as more inventory becomes available, we might see the housing market growing at an even faster pace.”

That said, there are certainly areas of the U.S. that are still sluggish in terms of new housing construction. According to the report, only three major metros saw increases.

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Multifamily Faces a Packed Development Pipeline

The sector is expected to add 330,000 new units in 2020, up from 304,000 a year ago.

Apartment developers have not been shy about bringing new product to market in recent years. And early indications are that 2020 will be another boffo year. The question is after several big years of hefty additions whether the market can digest the units that are in the works.

“The volume of apartments on the way in 2020 certainly could test the market’s ability to absorb a big block of additional units in a short time frame,” says Greg Willett, chief economist at real estate technology and analytics firm RealPage, Inc.

This late in the real estate cycle—after more than a decade of economic growth—many investors are making conservative choices, wary of a potential downtown. But apartment developers plan to make 2020 one the busiest years in the last decade for new construction. They continue to focus on the largest metro areas—especially “gateway” cities—where strong local economies can help fill new apartments. The amount of construction is being facilitated by the fact that lenders remain willing to provide construction financing even with so many projects on the books.

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