MReport August 2020

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58 | M REPORT 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 Housing Starts Surge in June One economist said homebuilders are in a "solid position" to respond to the pent-up demand of buyers. W hat a difference a month can make. The U.S. Census Bureau reported that housing starts, permits, and completions rose June from May, with starts growing 17.3% from the prior month. An estimated 1.18 million hous- ing starts were initiated in June, which is a sizable increase from the revised May estimate of 1.01 million. This, however, is 9% below the June 2019 rate of 1.23 million. "Housing construction is coming back in a strong way. Homebuilders are confident that they'll be able to sell as many homes as they can make," said Holden Lewis, Home and Mortgage Expert, NerdWallet. Building permits rose month over month by 2.1%, with an esti- mated 1.21 permits issued in June. This is also representing an annual drop, falling 2.5% from last year. The Bureau reported that hous- ing completions were 4.3% above the May estimate of 1.17 million, growing to 1.22 million. Housing completions surpassed the June 2019 rate by 5.1%. George Ratiu, Senior Economist,, said low mortgage rates are tempting buyers to return to the market, many of which focusing on homes with more space, better remote options, and less dense neighborhoods. "In response, construction activity had a strong rebound in June after the initial wave of business re-openings across the Sunbelt. The NAHB/Wells Fargo homebuilder sentiment index showed rising optimism in June, and July's numbers show home builder sentiment continued up- ward from June, hovering around pre-pandemic levels," Ratiu said. He added that home builders are in a "solid position to respond" to new buyer preferences, espe- cially with the shrinking inventory of existing homes. One deterrent could be the rising cost of lumber, labor, and construction materials, which may push home prices higher and "out of reach" for first-time buyers. Odeta Kushi, Deputy Chief Economist, First American Financial, said homebuilder opti- mism has recovered amidst robust demand. "Pent-up demand from a de- ferred spring home-buying season and historically low mortgages rates have resulted in a strong V-shaped recovery for the housing market, and builders are taking note," she said. Although June's numbers lag behind prior years', the monthly increase indicates builders are responding to the need for more homes. "More inventory will reduce the pressure from the lack of supply in today's market," Kushi said. Doug Duncan, Chief Economist, Fannie Mae, said new single-family sales have outpaced new single- family starts in recent months and the ratio between the two remained at the highest level since May 2009. "We expect to see continued strength in single-family starts and a leveling off of single-family sales in the third quarter, bringing that ratio more in line with historical norms. Supporting that forecast, single-family permits jumped by around 12% or the second straight month, suggesting new building has momentum heading into the third quarter," Duncan said. The Rise of ADUs Amid an Affordable Housing Crisis Freddie Mac's newest survey found sales of homes with accessory dwelling rose more than 4% in 2019. T here seems to be no letup in the nation's af- fordable housing crisis—at least not in the foreseeable future. That's fueling a movement in high-cost areas for legalizing and expanding accessory dwelling units (ADUs), also known as granny flats, garage apartments, and in-law suites, according to Freddie Mac. In established neighborhoods, there's nothing new about the con- cept of ADUs infilling housing. When you think of ADUs, well, Fonzie and his above-garage apart- ment in the Happy Days sitcom might tweak a memory. Then there's Jesse and Rebecca's attic conversion in another sitcom—Full House. An examination of the changes in the percentages of the total number of homes active and closed helps support the uptick in the supply and of ADUs. A total of 1.6% of active for-sale listings had ADUs in 2000. By 2019, the share of active for-sale listings with ADUs had swelled to 6.8%. As for those sold, less than 9,000, or 1.1% of homes sold on MLS in 2000 had ADUs. Sales of homes with ADUs grew to nearly 70,000 or 4.2% of homes sold on MLS by 2019. There also was an uptick in the percentage of rental ADUs from 2003-2019, from 1.8% to 4.1%. During the same period, the number of leased rental listings swelled from 1.2% to 2.9%. The passage of ordinances designed to shore restrictive zoning in some jurisdictions stems from the lack of affordable housing in the country's high-cost areas. The demand for accessory dwell- ings is highest in the fastest growing regions of the country, as supported by the data. Overwhelmingly, pop- ulation growth—in terms of both absolute numbers and percent—has spiraled in two regions, the South and West. The U.S. Census Bureau's 2010 through 2019 population esti- mates reported the South experi- enced an 11 million net spurt; a 9.6% growth; the West, a 6.4 million net increase; 8.9% growth. The Sun Belt states of California, Florida, Texas, and Georgia account for half of its total 1.4 million ADUs. Meantime, the number of for-sale listings that refer to ADUs grew more rapidly in the Sun Belt than the North. In the Sun Belt states, there was a jump from 4.3% in 2010 to 9.2% in 2019 in shares of active listings among homes with ADUs. In Northern states, shares ratcheted up from 2.7% to 4.1%. As for sold listings among homes with ADUs, Sun Belt states parachuted from 3.2% in 2010 to 5.6% in 2019 and from 2.2% to 2.6% in Northern states. Insofar as cities and states tran- sitioning away from single-family home zoning, Suzy Lindblom is the COO for Planet Home Lending, said that, as a country, more af- fordable housing is needed, as is observing what some of the states are doing nationally. For example, "I see accessory dwelling units more on the west coast than anywhere." They could be a garage conversion, a small house behind a house—"I think that's critical to help people be able to afford housing, especially in these high markets like California. I do see a change, and I think we'll con- tinue to see this change, and I think as an industry we will adapt to this change to help more consumers get into housing."

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