The Nail, March 24

THE NAIL

The official magazine of Home Builders Association of Middle Tennessee

President

Jim Hysen

Vice President

Kelly Beasley

Secretary/Treasurer

Eli Routh

Executive Vice President

John Sheley

Editor and Designer

Jim Argo

Staff

Connie Nicley

Kim Grayson

THE NAIL is published monthly by the Home Builders Association of Middle Tennessee, a non-profit trade association dedicated to promoting the American dream of homeownership to all residents of Middle Tennessee.

SUBMISSIONS: THE NAIL welcomes manuscripts and photos related to the Middle Tennessee housing industry for publication. Editor reserves the right to edit due to content and space limitations.

POSTMASTER: Please send address changes to: HBAMT, 9007 Overlook Boulevard, Brentwood, TN 37027. Phone: (615) 377-1055.

FEATURES

8

A Taste of Torciano returns in April, RSVP now

Sign up now to attend the popular wine tasting event April 4th at Historic Travellers Rest. Sponsorships available, register today.

9

Single family starts will rise according to economists

Economists speaking at the NAHB's Annual Builders Show outlined industry trends and provided a detailed forecast for the upcoming year.

DEPARTMENTS

6 News & Information

13 SPIKE Club Report

14 March Calendar

14

Chapters and Councils

ON THE COVER:

Economists at the NAHB's Annual Builders Show last month provided their forecasts for the upcoming year, including a rise in housing starts. See page 9 (nine) for more details.

New home sales up at the start of 2024

Stable mortgage rates at the beginning of 2024 helped new home sales to increase in January. Sales of newly built, single-family homes in January increased 1.5% to a 661,000 seasonally adjusted annual rate from a downwardly revised reading in December, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in January is up 1.8% from a year earlier.

A new home sale occurs when a sales contract is signed, or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the January reading of 661,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory in January remained elevated at a level of 456,000, up 3.9% compared to a year earlier. This represents an 8.3 months’ supply at the current building pace. A measure near a six months’ supply is considered balanced.

A year ago, there were 72,000 completed, ready-to-occupy homes available for sale (not seasonally adjusted). By the end of January 2024, that number increased 19.4% to 86,000. However, completed, ready-to-occupy inventory remains just 19% of total inventory, while homes under construction account for 58% of the inventory. The remaining 23% of new homes sold in January were homes that had not started construction when the sales contract was signed.

The median new home sale price in January was $420,700, up 1.8% from December, but down 2.6% compared to a year ago. In terms of affordability, the share of entry-level homes priced below $300,000 has been steadily falling in recent years. Only 15% of the homes were priced in this entry-level affordable range, while 34% of the homes were priced above $500,000. Most of the homes were priced between $300,000-$500,000.

Regionally, on a year-over-year basis, new home sales are up 4.9% in the Northeast and are up 57.0% in the West but down 4.1% in the Midwest and down 13.5% in the South n

Housing starts decline in January on multifamily weakness

Asharp decline in multifamily starts pushed overall housing starts down in January even as single-family production showed signs of a gradual improvement later this year as interest rates continue to moderate.

Overall housing starts decreased 14.8% in January to a seasonally adjusted annual rate of 1.33 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The January reading of 1.33 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts decreased 4.7% to a 1 million seasonally adjusted annual rate. However, single-family starts are up 22% compared to a year ago. The multifamily sector, which includes apartment buildings and condos, decreased 35.6% to an annualized 327,000 pace.

“Moderating mortgage interest rates in 2024 will ultimately lead to gains for single-family home building this year,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB) and a custom home builder and developer from Birmingham, Ala. “However, tighter lending conditions and higher costs for construction and development loans are holding back some construction at the start of the year.”

“Multifamily construction is forecasted to post a large decline in 2024 as the number of units currently under construction is near the highest level since 1973,” said NAHB Chief Economist Robert Dietz. “Meanwhile, single-family production, which is currently running at a 1-million-unit annual rate, is roughly in line with builder sentiment that remains right below a breakeven level, according to our latest surveys. We are forecasting single-family starts to post a modest gain in 2024 as mortgage rates moderate on expected interest rate cuts by the

Builder sentiment posts third consecutive monthly gain

Expectations that mortgage rates will continue to moderate in the coming months, the prospect of future rate cuts by the Federal Reserve later this year, and a protracted lack of existing inventory helped provide a boost to builder sentiment for the third straight month.

Builder confidence in the market for newly built single-family homes climbed four points to 48 in February, according to the latest NAHB/Wells Fargo Housing Market Index (HMI). This is the highest level since August 2023.

“Buyer traffic is improving as even small declines in interest rates will produce a disproportionate positive response among likely home purchasers,” said NAHB Chairman Alicia Huey. “And while mortgage rates still remain too high for many prospective buyers, we anticipate that due to pent-up demand, many more buyers will enter the marketplace if mortgage rates continue to decline this year.”

“With future expectations of Fed rate cuts

in the latter half of 2024, NAHB is forecasting that single-family starts will rise about 5% this year,” said NAHB Chief Economist Robert Dietz. “But as builders break ground on more homes, lot availability is expected to be a growing concern, along with persistent labor shortages. And as a further reminder that the recovery will be bumpy as buyers remain sensitive to interest rate and construction cost changes, the 10-year Treasury rate is up more than 40 basis points since the beginning of the year.”

With mortgage rates now below 7% since mid-December, more builders are cutting back on reducing home prices to boost sales. In February, 25% of builders reported cutting home prices, down from 31% in January and 36% in the last two months of 2023. However, the average price reduction in February held steady at 6% for the eighth straight month. Meanwhile, the use of sales incentives is also diminishing. The share of builders offering some form of incentive dropped to 58% in February, down from 62% in January and the

Federal Reserve later this year.”

On a regional basis compared to the previous month, combined single-family and multifamily starts are 20.6% lower in the Northeast, 30% lower in the Midwest, 9.7% lower in the South and 15.7% lower in the West.

Overall permits decreased 1.5% to a 1.47 million unit annualized rate in January. The disparity in permit growth between single-family and multifamily construction is consistent with the outlook for each submarket. Single-family permits increased 1.6% to a 1.02 million unit rate, the highest since May 2022. Multifamily permits decreased 7.9% to an annualized 455,000 pace, the lowest since April 2020.

Looking at regional permit data compared to the previous month, permits are 19.4% higher in the Northeast, 6.6% higher in the Midwest, 7% lower in the South and 1.5% higher in the West.

The number of apartments under construction dipped below 1 million for the first time since May 2023, with additional declines expected in 2024. In contrast, the number of single-family homes under construction stood at 680,000 in January, matching the best reading since June 2023. n

lowest share since last August.

Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three of the major HMI indices posted gains in February. The HMI index charting current sales conditions increased four points to 52, the component measuring sales expectations in the next six months rose three points to 60 and the component gauging traffic of prospective buyers increased four points to thirty-three.

Looking at the three-month moving averages for regional HMI scores, the Northeast increased three points to 57, the Midwest gained two points to 36, the South rose five points to 46 and the West registered a sixpoint gain to thirty-eight.” n

Single family starts will rise in 2024

While higher interest rates pushed single-family starts down in 2022 and 2023, production should move on a gradual upward path in 2024 as the Federal Reserve is on track to cut rates during the second half of the year with inflation slowing, according to economists speaking at the National Association of Home Builders (NAHB) International Builders’ Show in Las Vegas in February.

“While the Fed’s fight against inflation is building progress, the lingering inflation challenge is housing inflation,” said NAHB Chief Economist Robert Dietz. “Shelter inflation— rent and homeownership costs—are still rising at a 5.4% rate, and for the past year, more than half of overall inflation in the economy has been shelter inflation. The only way to tame shelter inflation, and get overall inflation lower, is to build more housing.”

With a nationwide shortage of roughly 1.5 million housing units, increasing the nation’s housing supply will not only help tame inflation, but also ease the nation’s housing affordability crisis by moving toward a healthy supply-demand balance in the for-sale and rental markets.

NAHB is forecasting two or three Fed rate cuts of 25 basis points each during the latter half of 2024, which should put mortgage rates on an uneven downward path. With economic

data stronger than expected at the start of the year, mortgage rates increased from about 6.6% to 6.9% by the end of February per Freddie Mac, indicating that even with rates expected to moderate in the months ahead, it could be a bumpy path forward.

“By the end of this year, NAHB projects mortgage rates will be below 6.5% and by the end of 2025, we expect rates to be in the high 5% range,” said Dietz. “This is good news for builders, housing demand and housing affordability.”

But as single-family home building expands in 2024, the market will see growing supply-side challenges in the form of higher prices and/or shortages of lumber, lots and labor.

“Home builders continue to contend with elevated construction and regulatory costs,” said Dietz. “Indeed, regulatory costs, which include complying with building codes, zoning issues and other costly challenges, make up almost 24% of the final sales price of a newly built single-family home, or $93,870 per new home.”

NAHB conducts a survey on the regulatory costs of home building every five years and the latest survey shows that regulatory costs for an average home built for sale increased by 11% from 2016 to 2021, faster than inflation.

The Forecast

As interest rates moderate, single-family

starts are forecast to increase 4.7% this year to an annual rate of 988,000 units and rise an additional 4.2% in 2025 to a 1.03 million pace. “We need to build more than 1.15 million single-family homes a year to reduce the nation’s housing deficit,” Dietz noted.

On the multifamily front, NAHB is expecting multifamily starts to fall 19.7% this year to a rate of 379,000 because of tight credit conditions. There are approximately 1 million apartments under construction – the highest rate since 1973 – and as these new apartments come to market, rent growth will slow, which will help ease inflation. However, this new supply will put a damper on the apartment market until it stabilizes in 2025 with a 2.3% gain to 388,000 units.

Meanwhile, residential remodeling activity is expected to remain relatively flat this year followed by a 2% gain for 2025 as the existing home sales market improves.

More Builders are Bullish

With the mortgage rate “lock-in” effect contributing to existing home sales falling to near a 30-year low in 2023, and new homes sales accounting for more than 30% of the single-family market (compared to a 10-12% average rate), the new home sales market appears poised for another solid year in 2024.

“Eighty percent of builders (continued on page 11)

(continued from page 9) builders anticipate starting more homes this year, and more than half (51%) expect that starts will be up more than 10% compared to 2023,” said Zonda Chief Economist Ali Wolf.

And amidst a shortage of buildable lots, there is close to an even split about charting future land acquisition strategy. A Zonda survey shows that 49% of builders are moving “full steam ahead,” while 46% plan to cautiously move forward. There is a similar split with how builders are seeing land prices, with 49% reporting land prices are moving higher compared to a few months ago while 42% said that prices remain relatively flat.

On the demographic front, there has been a big shift in buying among millennials and baby boomers. Among the generations, boomers accounted for the largest overall home buying share in 2023 at 39%, up roughly 10 percentage points from the previous year. Meanwhile, millennials led the generational home buying share in 2022 with more than 40% of the market, but that rate plummeted to 28% last year. A major factor could be the generational wealth effect, as the share of all-cash sales hit a nine-year high in 2023, and averaged well above 20% in

several major markets.

And in helping to understand what today’s new home buyer wants, Wolf noted the top answer buyers gave in considering a purchase is to “avoid renovations or problems,” with more than 40% citing this reason. This was followed by a lack of inventory of previously owned homes and the ability to choose and customize design, which were both cited by about 25% of respondents. Energy efficiency and smart home features were at the back of the pack, under 10% and 5%, respectively.

Housing is Past Peak Unaffordability

While housing affordability remains a serous challenge, the market appears to have hit its peak unaffordability level in October last year, according to Danielle Hale, chief economist at Realtor.com.

“The monthly mortgage payment for a median-priced active home listing reached a high of $2,405 in October 2023, which represents 29.1% of the share of a median family income,” said Hale. “In January 2024, the payment amount was $2,101, or 26.8% of a median family income.”

Like the other economists, Hale said that

more housing inventory is needed to address nationwide shortfalls and ease affordability woes. Citing Realtor.com data, she pointed out that 2023 inventory levels were 36% below the 2017-2019 average, and that a 56% surge is needed just to catch up to that past rate.

Inventory trends vary widely across the nation, Hale noted, with many markets in New England and the Midwest continuing to have an extremely limited supply of homes available. For example, in January 2024, Hartford, Conn. had 81% fewer homes for sale compared to the 2017-2019 period, and it was followed by Rochester, N.Y. at 71%. Other major markets including Philadelphia, Chicago, Cleveland and Baltimore had well above 50% fewer homes available for sale over the same time period.

The story is different in the South and West, where many markets have recovered or are within 15% of the average 2017-2019 for-sale level. Three Texas metros – San Antonio, Austin and Dallas-Fort Worth –actually had more homes for sale in January 2024. New Orleans, San Francisco, Denver and Houston had inventory levels in January 2024 that were slightly in the red compared to 2017-2019 n

MARCH CALENDAR

CHAPTERS & COUNCILS

CHAPTERS

CHEATHAM COUNTY CHAPTER

Chapter President - Roy Miles Cheatham County Chapter details are being planned.

Next meeting: to be announced.

RSVP to: cnicley@hbamt.org

DICKSON COUNTY CHAPTER

Chapter President - Mark Denney Dickson County Chapter details are currently being planned.

Next meeting: to be announced.

Price: FREE, lunch dutch treat.

RSVP to: cnicley@hbamt.org

MAURY COUNTY CHAPTER

Chapter President - Lisa Underwood Maury County Chapter details are currently being planned.

Next meeting: to be announced.

RSVP to: cnicley@hbamt.org

METRO/NASHVILLE CHAPTER

Chapter President - Tonya Esquibel Metro/Nashville Chapter details are currently being planned.

Next meeting: to be announced.

Topic: to be announced.

RSVP to: cnicley@hbamt.org

ROBERTSON COUNTY CHAPTER

Robertson County Chapter details are currently being planned.

Next meeting: to be announced.

RSVP to: cnicley@hbamt.org

Sales & Marketing Council meeting

SUMNER COUNTY CHAPTER

Chapter President - Joe Dalton

The Sumner County Chapter typically meets at the new Hendersonville Library. Future meetings to be announced.

Next meeting: to be announced.

RSVP to: cnicley@hbamt.org

WILLIAMSON COUNTY CHAPTER

Chapter President - Christina James Williamson County Chapter details are currently being planned.

Next meeting: to be announced.

RSVP to: cnicley@hbamt.org

WILSON COUNTY CHAPTER

Chapter President - Margaret Tolbert

Next meeting: Thursday, April 11th.

Topic: to be announced.

Free pending sponsorship.

RSVP to: cnicley@hbamt.org

COUNCILS

HBAMT REMODELERS COUNCIL

The HBAMT Remodelers Council meets at varying locations throughout the year.

Next meeting: to be announced.

RSVP to: cnicley@hbamt.org

INFILL BUILDERS COUNCIL

Infill Builders Council details are currently being planned. Next meeting: to be announced.

MIDDLE TENN SALES & MARKETING COUNCIL

Council President - Beth Lewis

The SMC typically meets on the first Thursday of the month, 9:00 a.m. at the HBAMT offices.

Next meeting: THURSDAY, MARCH 7TH

Topic: "How AI and ChatGPT Can Benefit Your Business," with Dr. Colby Jubenville, MTSU Professor and Business Coach.

SMC Members Free thanks to Mortgage Mike at Movement Mortgage!

Non-SMC members: $15 with RSVP; $20 w/o RSVP RSVP to: cnicley@hbamt.org