Long-term Trends

The recent economic crisis has made a mockery of the phrase “safe as houses”, but trends are making a turn. These days, investors in homebuilding and related industries are laughing all the way to the bank.

In August, the U.S. government reported that housing starts reached a seasonally adjusted 1.206 million units in July – the highest since October 2007. To understand why housing construction likely has a long runway ahead of it, independent of the rate and affordability angle, put that number into some perspective.

Since 2008, housing starts have averaged 791,000 on an annualized basis. Adjusted for population, that is less than half the amount between 1990 and 2007. That period encompassed the housing boom but also two recessions.

Even the latest figure is just two thirds of that pace on a population-adjusted basis. In other words, there is both significant pent-up demand from a long construction slump and still a significant gap between todays level and historical norms.

While a stock market storm may be unfolding, it looks like housing’s foundations look pretty solid.

Edited from the Wall Street Journal

Fannie Mae stepping up and going green

The mortgage-finance company Fannie Mae is rolling out a program this year that lets lenders include income from non-borrowers within a household toward qualifying for a loan.

The move is expected to open up mortgage access to a segment of the population that doesn’t fit the typical family structure, such as multigenerational households and homes that include extended family. Open only to low-income borrowers or those living in low-income or minority-dominated areas, the program will also allow borrowers not living in the home to contribute income in some cases.

Also in the works from Fannie Mae is their new Green Initiative, a financing tool announced in February that provides a break for multi-family homes with recognized green building certification, an encouraging sign that sustainable building practices aren’t just better for the Earth, but also better for the bottom line.

In the works for five years, the Green Initiative is the first program in the US market that has figured out how to recognize, asset manage, and securitize green building loans.

Edited and revised WSJ & GB&D

Home Building Pace Picks Up

home trendsU.S. Housing starts rose .2% from a month earlier to a seasonally adjusted annual rate of 1.21 million last month, the highest since October 2007, according to the Commerce Department.

New home construction is booming – and laying a strong foundation for a possible interest-rate increase. “Construction activity is picking up across the country, which we take as a positive signal about the health of the U.S. consumer and overall economy,” Barclays economist Jesse Hurwitz said in a note to clients. Single-family construction generally provides a bigger boost to the economy, and single-family starts were up by 12.8%.

U.S home builders also appear more optimistic. The National Association of Home Builders’ confidence index rose to its highest level since November 2005, to a reading above 61 in August. A reading above 50 means most builders generally hold a favorable view of the market for newly built, single-family homes.

Changes in housing starts tend to predict the direction of the unemployment rate some 12 to 18 months later. Indeed, the connection is so strong and has held for so long that housing starts can be fairly said to be among the most powerful economic leading indicators available.

Strong demand for homes could also mitigate some of the squeeze that rising interest rates will put on mortgage lending. An improving economy and rising employment could prompt looser standards for purchase mortgages and first-time buyers.

Notably, though, there are few signs that housing itself is overheating. Starts are still below where they were for most of the 1990’s, before the housing bubble. This suggests that they could keep rising, at least until they get closer to the annualized pace of 1.5 million new units that many economists consider “normal”.

The gulf between builder sentiment, which has surged, and slowly rising single-family starts has grown since 2011.

Excerpted and edited from WSJ

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