MReport February 2019

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52 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST DATA Fits and Starts Experts weigh in on how they see 2019 playing out for home building permits and completions. A slowdown in housing completions could be a sign of a corresponding slowdown in immediate housing supply relief. At least that's how First American Chief Econo- mist Mark Fleming sees based on U.S. Census numbers. The New Residential Construction Report found completions down almost 4 percent year-over-year, even as the number of housing units under construction grew by that very amount. At the same time, the number of housing units authorized to be built jumped by 16.4 percent. November's 1.256 million single residential starts nationally was an uptick of 3.2 percent from October, but 3.6 percent lower year-over-year. Family starts totaled 824,000, which is 4.6 percent lower than in October. Starts were down double digits in the Midwest and West, but way up in the Northeast. The Northeast saw 124,000 starts last month, the most since January. That's 38 percent above October and 33 percent above November 2017. The South also saw a 15 percent increase in starts from October and was up 1.3 percent year-over-year. "Looking ahead to 2019," Fleming said, "single-family home- building will need to increase to keep pace with rising demand from the largest generation, mil- lennials, as they enter their prime home-buying years." But Fleming is optimistic. "Despite underwhelming hous- ing starts data in the past two months, there are nevertheless rea- sons to feel cheerful about home- building in 2018," he said. "We saw particularly strong growth in multi-family starts." In fact, there were 417,000 starts for properties of five or more units in November—a 25 percent uptick from October and a 20 percent bump from a year earlier. Danielle Hale, Chief Economist at, was a little less rosy about what's ahead, at least in the single-unit sector. Hale said the downswing in permits and completions stems from a spike in mortgage rates in early November that undermined buyer purchasing power and caused a dip in builder confidence. "As long as builders remain concerned about buyer demand, single-family starts are likely to decline as builders adjust produc- tion accordingly," she said. "Rising home prices and mortgage rates have created high hurdles for homebuyers, while cost increases have made it difficult for builders to deliver homes at the most in- demand price points." Hale added that recent easing in mortgage rates could help some buyers find homes to purchase. "But in most markets, we'll continue to see stalemate between buyers and sellers, with fewer transactions than we saw a year ago," she said. To Buy or to Rent? Some markets in the U.S. are trending towards homeownership while others are turning more rent-friendly. T he national index released by Florida Atlantic Uni- versity (FAU) and Florida International University (FIU) faculty point out that some real estate markets are peaking while others are in a different pric- ing bubble. The index summarizes 23 major metropolitan housing markets and the U.S. real estate market as a whole. According to the Beracha, Hardin & Johnson (BH&J) Buy vs. Rent Index, estimates renting and reinvesting in more traditional financial assets as well as home- ownership and equity appreciation. The index uses scoring that indi- cates strong downward pressure if it reached a score of one. Among the 23 metropolitan areas surveyed, two cities are steadily approaching a score of one. Dallas leads the charge at (.92) followed by Denver at (.77). Strong economies in both these areas are responsible for the surge in prices, the report noted. Ken Johnson, one of the index's creators and Associate Dean and Professor in FAU's College of Business, said that the residential real estate prices in Dallas "are significantly above their long-term pricing trend and price corrections are anticipated in the near future. " "Both Dallas and Denver are sig- nificantly overheated," he said. The current upward pattern in property appreciation is nearing an end, according to Eli Beracha, co- creator of the index and Director of the Hollo School of Real Estate at FIU, as a result of which, prices are still appreciating in both met- ros but at a decreasing rate. Over the last quarter, of the 23 cities in the BH&J Index, 20 gravitated toward renting, indicat- ing that these markets see it as a viable option for wealth creation. However, Honolulu, Miami, and Seattle—cities that were predomi- nantly in the renting space—revert- ed to the homeownership territory on a marginal basis. "This does not mean that these markets are exhibiting clear buy signal but rather they appear to be pulling back from the brink as buy- ers begin to negotiate more aggres- sively in these areas," said William G. Hardin, Director of FIU's Jerome Bain Real Estate Institute and Associate Dean of the Chapman Graduate School of Business. "Looking ahead to 2019, single-family homebuilding will need to increase to keep pace with rising demand from the largest generation, millennials." —Mark Fleming, Chief Economist, First American

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