Are Builders Ready to Wind Down Construction? – HomeUnion

Are Builders Ready to Wind Down Construction?

Apartment Construction Peak in Sight, Single-Family Development Could Fade in 2018 Absent a Shift in Prices and Wage Growth

The new residential construction report from the U.S. Census Bureau offers a mixed outlook on the supply side of the housing market. Year-over-year, permitting and completions outpaced last year’s performance. Building permits registered 1.2 million last month, up 4.1 percent from the same period last year, while completions recorded an 8.2 percent increase from July of 2016 at 1.2 million. However, housing starts are down from both June of this year and July of 2016, which could be our first indication that the peak of this construction cycle is on the horizon. In July, builders broke ground on 1.2 million homes, 5.6 percent lower than one year ago. Much of the decrease is in the multifamily sector, where demand for new units has failed to keep pace with supply in many urban core locations. Apartment construction, which is easier to forecast due to the longer timeline on most projects, is expected to peak this year.

If the single-family home construction cycle begins to wane this year, it will likely be due to high prices paring away demand rather than excess supply. In the 40 years prior to the most recent recession, 71 percent of new home construction consisted of single-family properties. However, only 67 percent of the new construction has been single-family properties since the economy began expanding in 2010. While a few percentage points may appear insignificant, the spread equates to 3.1 million homes. Although it’s popular to say that millennials want to live in apartments and near their places of employment, it’s also very apparent that builders haven’t given them much of a choice.

As the economy moves into a period of prosperity and interest rates begin to rise, a sufficient runway for builders to correct this imbalance during the current cycle unlikely exists. A sizable price gap exists between new and existing homes, and most new homes that are affordable for first-time buyers are located in distant suburbs. This trend bodes well for homeowners and investors. Equity accumulation and renter demand should remain healthy through the end of the cycle, with pressure from the multifamily market beginning to abate in the coming months in most areas.

Matthew Udewitz, MBA Aug 24 2017 - 12:30 PM
In Los Angeles's downtown area, there is no slowing down in sight. Over 100 very large buildings are on the horizon for development, many of these buildings would be considered sky scrapers over 10 stories high. In Southern California there is a shortage of land for new single family residences. Individual homes can be purchased for land value in top locations well over $1.5 million. These houses are built one at a time. The construction of multifamily buildings with condominium maps, enables builders to offer for rent and for sale product for long or short term living situations. The Los Angeles and Southern California markets are very hot with an influx of venture capital, the emergence of Silicon Beach, major developments at LAX, USC, and downtown. Hollywood, The West Side, and the Beaches are experiencing the highest demand. To add fuel to the marketplace, the Olympics are coming in just about 10 years. For properties in major cities over $20 million please feel free to contact me. I have significant inventory of properties up to $500 million in size. Most of my off market current inventory is located in New York and California. Keller Williams Commercial, Brentwood Offices, University of California San Diego, Rady School of Business, MBA, Matthew Udewitz 619.243.4722.
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