MReport March 2020

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M REPORT | 55 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 Residential Construction Spending Surpassed $540B in 2019 Single-family growth and remodeling were key factors behind the increase. A nalysis from the National Association of Homebuilders on the Census Bureau's construction spending data shows that residential construction spending rose 1.4% to an adjusted rate of $540.7 billion in December 2019. The report states that falling mortgage rates have helped lead to the sixth consecutive monthly increase after declines in the first half of 2019. The total value of private residential construction was $514.3 billion in 2019, which is 4.7% lower than in 2018. The monthly increase from November to December is due to the growth of single-family construc- tion and remodeling. Single-family spending was at an annual pace of $289.3 billion—up 2.7% in December and 5.2% from December 2018. Non residential construction, however, fell 1.8% in December to $450.5 billion and fell marginally 0.1% annually. The rise in residential con- struction has caused the price of lumber to grow as more new are being built that any time since the Great Recession, according to The Wall Street Journal. The Journal states that lumber futures are up more than one-third from last June's lows. Futures for March delivery closed at $422.30 per 1,000-board feet on the Chicago Mercantile Exchange. Shares of the largest timber company, Weyerhaesuer Co., are up about 5.5% over the last year but still a quarter below the highs from June 2018. Weyerhaesuer on said it lost $76 million in 2019, compared with a $748 million profit the year before. The company attributed its issues last year from the trade dispute with China, which caused the company to reduce log exports from the U.S. Southeast, as well as a flood of cheap competition from European spruce logs salvaged after beetle attacks. The slowing of price growth for building materials could be seen as positive news, as a report by the NAHB last year that increas- ing regulatory costs, the shortage of construction workers, tariffs on $10 billion worth of building materials, and concerns over housing finance have impacted housing affordability. The report says that regulations account for 25% of the price of a singl family home, and 30% of the cost of multi-family development. "Removing regulatory barriers that contribute to the increased costs of housing will pave the way to home- ownership," said NAHB Chairman Greg Ugalde, a builder, and devel- oper from Torrington, Connecticut. "Homebuilders and the residential construction community are com- mitted to working with Congress to ensure homeownership is within reach of hard-working families. Doug Duncan, SVP and Chief Economist at Fannie Mae, told MReport that the recent Phase One deal with China signed by President Donald Trump will have a "fairly minor impact" on GDP. He said the most significant aspect of the deal is not the reduction of existing tariffs, but the elimination of planned additional tariffs. An addi- tional 15% tariff on $160 billion worth of exports from China scheduled for December 15 will no longer take place. Also, the 15% tariff on $112 bil- lion of Chinese exports put in place September 1 is being cut to 7.5%. "It is better for consumers in the U.S. and China that the tariffs were reduced," Duncan said. "The other part of it [the trade agree- ment] committed China to a huge increase in the purchase of US goods. In fact, it is difficult to believe that the infrastructure ex- ists to be able to execute it all in a timeframe that's contemplated." Home-Price Appreciation Averaged 3.6% Last Year Values are expected to rise more than 5% in the months ahead. C oreLogic reported that home prices rose 4% annually in December 2019 and are expected to increase 5.2% over the next year. December's home-price gain was down from the De- cember 2018 increase of 4.4%, but up from November's 3.5% gain. Price appreciation averaged 3.6% for 2019, which is a consider- able drop from 2018's average of 5.8%. CoreLogic projects average growth for 2020 to be 4.6%. CoreLogic's Home Price Index (HPI) has increased on a year- over-year basis every month since February 2012 and has gained 63% since bottoming out in March 2011. The overall HPI, as of December 2019, was 9.8 higher than its pre- crisis peak in April 2006. Homes priced in the lowest tier once again saw the largest increase, with value rising 5.9% annually in December 2019. Prices in the low-to-middle price tier rose 5.2%, the middle-to-moderate- price tier increased 4.4%, and the homes in the highest tier witnessed values rise 3.7%. Since 2011, homes in the lowest- priced tier gained 97.5%. Idaho ended the year where it was for most of it—leading the nation in home-price appreciation. Home prices in Idaho rose 9.9% in December. The national average was around 4%. Home prices in Connecticut rose just 0.2% in December and are 17.2% below their pre-crisis peak. Nevada saw the largest slow-down in home prices, as values rose 3.1% in December— much slower than the 10.5% annual increase in December 2018. While rising home prices are continuing to hamper affordability for many prospective buyers, the AEI Housing Center submitted a letter to the White House Council on Eliminating Regulatory Barriers to Affordable Housing, saying zoning and land-use regu- lations are a cause for concern. "The root cause of the affordable housing shortage is land use and laws, not labor and lumber," AEI noted in its letter. The letter continued, saying that in 1921 the federal government was the driving force behind the widespread adoption of zoning and the "near-exclusive shift" to single-family structures. "The U.S Department of Commerce was complicit in promoting the use of geographically separated zoning districts consisting of one-unit, single-family structures or (ii) multifamily structures, to keep racial and ethnic groups separate," AEI said. Additionally, the letter states that beginning in 1934 the Federal Housing Administration took over from the Commerce Department and continued to play a role in using zoning to "keep [African- Americans] and immigrants] in zoning district separate from whites.

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