Housing starts fell 9.5% in April

We've decided to sell our home in Austin; been in that home 25 years. Of course in todays Austin market our value has increased by a ridiculous amount; enough that we should be able to sell the home quickly (when the timing is right in several months), downsize a bit and get a one-story outside of Austin (as we age we're not liking what we see, which is painful to watch), pay cash and probably have at least $100k left over. So financially and lifestyle wise, the timing makes sense.

Within 2 weeks our builder had two increases on the base price. The first one was $16k and the second $30k. We know more are to come. We signed our contact between the two increases. The logic we were given for each were those same things many posters have already mentioned; especially lumber, electrical and plumbing. It will be about 10 months after contract signing on May 1, when they project the new home to be finished (and I expect it may slip some).

The builder can only sell three houses per month in each of their numerous developments in Texas for these reasons; they have plenty of land right now in the development we chose.

We looked at existing homes, and the inventory just isn't there. We went to a couple of open houses as a basis for comparison, and they had 27 and 22 offers (over list) respectively, after two days on the market. We chose not to fight that battle. It'll take us longer, but we feel a little bit more in control. Fortunately we're in a good position with our current home, and that will probably improve by the time we put it on the market (fingers crossed).

We feel really bad for the first time buyer. That stinks. I think that at some point it will dampen corporate growth here, but who knows for sure? However, prior to this home, we've lost money on every home we've sold (5, in different geographies); even with corporate relo assistance. So it feels good to be on the other end of things this time. As 'olds' this is the time in our lives when we want to be on the 'plus' side.

I hope many of you out there are having/will have similar, positive experiences. It'll normalize at some point; but who can predict that?
 
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Covid basically broke the supply chain along with high demand from people being at home and starting home projects are causing shortages and thus high material spikes. Everything is in back orders.

Absolutely this is causing the the slow down in home building.

An interesting thing to watch is what will happen to the housing market once the covid foreclosure ban is lifted and the forbearances (pause on the mortgage payments) end on June 30, 2021. The last number I saw was that about 2.25 million homeowners in forbearances.

How many foreclosures are we about to see and what will this do to housing prices?

The foreclosure won't happen. those on forbearance will have their deferred payments rolled in or a modification done.
 
If you’re a custom builder doing Cost Plus, then it’s probably not a concern building right now. If you’re a spec builder (especially doing multiple specs), you’re taking a big chance building in this current environment.
There are quite a few spec builders that are limiting the # of houses they sell on a monthly basis. I heard of one that is only selling at a rate of 3/month
 
Have a friend going through this exact issue. On a house that would normally cost about 475 to build he's looking at spending close to 650
 
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The foreclosure won't happen. those on forbearance will have their deferred payments rolled in or a modification done.

Interesting.

I have read that one of the reasons for the housing bubble (if there is one) is because of the lack of foreclosures. That there are a couple of million foreclosures that would have occurred but for corvid and that many of these will come due a few months after the 6/30 deadline (unless it's extended).

What do you think of this possibility?
 
Completely understandable. That’s why I was saying unless you’re a builder doing Cost Plus, it doesn’t really make sense to build a spec or give a fixed price on a custom build right now.
True, but what homeowner wants to sign up for cost plus in this environment? They may end up paying 33% above the initial budgeted estimate.
 
The foreclosure won't happen. those on forbearance will have their deferred payments rolled in or a modification done.
This is exceedingly likely. It's very easy to simply push the note down the road another 12-15 months.

Also, in this market, no-one will get to a foreclosure with the bank actually taking the keys. People would just sell their home, pay off the note, and walk with any excess cash.

I can't imagine many people are "upside down" on their mortgage. That was the big problem back in 08/09. Not so much now.

Now, I'm not familiar with the current metrics lenders are using to gauge who to give loans to. It is possible they have let standards "slip". However, I do find that a little hard to believe. I suspect, I would have seen a bunch of articles about that if it were the case.

My take is that the current home buyers are qualified (within reason, if prices double, perhaps they couldn't afford a home). I don't think it is a situation in which the banks are skirting rules/requirements to make loans.

Also, as the economy continues to spin, more and more people will return to work and be earning money. That will add to the number of people that can afford a home, and potentially want one.
 
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Interesting.

I have read that one of the reasons for the housing bubble (if there is one) is because of the lack of foreclosures. That there are a couple of million foreclosures that would have occurred but for corvid and that many of these will come due a few months after the 6/30 deadline (unless it's extended).

What do you think of this possibility?
You have a point here. In a normal market there are always a certain number of foreclosures. Those have been put on hold. However, I agree with what others have said that most foreclosures will be put on some sort of deferral or restructuring plan.

Now, those homes could come on the market as people simply sell, rather than fight with the bank. But I suspect it will be a while till all that is worked out.

Its not as if on July 1st millions of foreclosures will hit the market. It takes at least 12 months for that process to work through the bank. The banks will have to start that process from scratch once the deadline is over.
 
True, but what homeowner wants to sign up for cost plus in this environment? They may end up paying 33% above the initial budgeted estimate.

I guess it depends on the situation. I work with many high end custom home builders (River Oaks, Tanglewood, Memorial, West University). They’re all extremely busy and have tons of new custom builds getting ready to start.
 
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Interesting.

I have read that one of the reasons for the housing bubble (if there is one) is because of the lack of foreclosures. That there are a couple of million foreclosures that would have occurred but for corvid and that many of these will come due a few months after the 6/30 deadline (unless it's extended).

What do you think of this possibility?
I think it'll be tough to see that happen just due to the fact many companies will just add it to the back end or modify the loan. Nobody is going to want to foreclose in this environment, right after a pandemic. That along with rising home values, most would probably end up selling at a profit if they did get behind on payments.

Most Mortgage companies and banks do not want to foreclose if they can help it. That's why these days you see many people with modded loans and terms over 30 years
 
Materials are insane. As is finding labor.

It will balance itself out but in the mean time prices for existing will rise quite a bit
 
Not to sound overly simple, but I don't see this as a "political" issue.

The builders have slowed down construction because their materials costs have skyrocketed. This is largely due to lumber prices going up. Lumber prices are increasing mainly due to the fact that Canada isn't shipping/processing lumber. Canada isn't shipping/processing lumber because they're still shut down due to COVID.

Or, perhaps, the Canadian lumber industry is more-or-less back in business. The problem is simply that the supply chains have been emptied, because the industry was shut down for an extended period.

The issue is really a mismanagement/miscalculation with the supply chains surrounding COVID. Many businesses guessed their business would slow down at the start of the pandemic. They were wrong.

We make microprocessors? Clearly our business will slow down as a result of the overall economy contracting, and people will be making less big purchases like appliances and cars.

However, lets ignore the fact everyone will be working from home, and will need all the equipment and supplies to make the possible/efficient. Laptops, monitors, keyboards, mice, printers, better routers, etc.

We make plywood and 2x4's? Clearly our business will slow down as a result of the overall economy contracting, and people will not be buying new homes because they'll be scared about job security.

However, lets ignore the fact that everyone will be working from home (and most very secure in their job), with their wife and 2 kids in the house. The idea they may want more house to so they can have a home office is beyond our ability to comprehend. Furthermore, people that are actually out of work, and homeowners, and stuck at home cause they have nothing else to do, would never dream of buying some wood and starting a DIY project at the house.

I'm not trying to bash the decisions some of these companies made, but in hindsight, a lot of them were laughable.
To add to the work from home topic, I think there was an inflection point where we realized wfh was working better than many thought it would, myself included, and this thing was going to last awhile.

At that point, people went into overdrive setting up a home office buying multiple flatscreens, etc.

The system is probably still trying to catch up from that.

It has definitely provided business school case studies for years to come.
 
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I know it's political in nature, but let's try to have a discussion on it without people losing their shit.

Housing starts fell 9.5% in April to an annual rate of 1.57 million. Single-family home starts dropped 13.4% to an annual rate of 1.087 million. Could the slowdown be tied to soaring material prices? | #realestate #homebuilding #economy




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And so it begins, the start of the housing down fall coming. Just wait till all these over priced homes that the millennials bought or built find out how much under water they will be in the year to come.
 
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I don't see it as political because i attribute it more to the pandemic's impact on consumer priorities and behavior, and disruption to the materials/supply.
 
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Was told today by a large commercial project manager that they are pushing away anything with a lot of wood or finding other alternatives due to the crazy costs. They expect things will calm down but not right now.
 
Forgive me but I don't follow your message here. Are you saying central texas is slowing down or not slowing down?
The question was about housing starts falling. Central Texas Housing starts are falling due to the points I made. Costs are up and building materials short, along with available lots to build.
 
The question was about housing starts falling. Central Texas Housing starts are falling due to the points I made. Costs are up and building materials short, along with available lots to build.
I am surprised to hear that central Texas housing starts are falling. I'm not doubting you, but do you have any statistics on it? I'm talking specifically CenTex.
 
And so it begins, the start of the housing down fall coming. Just wait till all these over priced homes that the millennials bought or built find out how much under water they will be in the year to come.
I think you are misreading this. Materials prices have rocketed up. Now is an unwise time to build unless you have no other options or have a lot of money.
 
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you mean if you print up 20 trillion of debt in a span of 12 years you eventually get inflation which causes economic slowdown while also having commodity price spike? Who knew. Would be cool if history had taught us some basic economics.
 
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I think you are misreading this. Materials prices have rocketed up. Now is an unwise time to build unless you have no other options or have a lot of money.
No I get it. that's why I'm saying for all the first time home buyers and people that bought at the high market levels are going to feel the pain in the short future. If your a seller it's great, but not as a buyer.
I was offered just last month to sell my property and would make 4 times my money, but where would I go?
I would make a mistake and be in the same position as these new buyer are in so I'm going to hold.
 
I am surprised to hear that central Texas housing starts are falling. I'm not doubting you, but do you have any statistics on it? I'm talking specifically CenTex.
We just built a new house and moved in a few weeks ago. The whole neighborhood is sold out now with the only the builders second section, they are holding the sell of final two homes due to costs rising. And every other neighborhood when we starting looking where to build was getting further and further out of town, and basically sold out, except for the one we found which had just opened. That builder doesn't have anything else now except a few lots in Georgetown or build on your own lot.

Since then, the whole market has gotten crazier. Even the suburbs entry level new builds in Leander, Taylor, Hutto have soid out so fast their future sections are not ready until next year. Inventory is extremely low and new builds are short simply because their lots sold out much faster than expected. The cost situation complicates timing of more.
 
I don't think the number of foreclosures is going to be high like 2008, BUT since so many have been artificially held back the initial filings will all hit at once.

I have a connection to an out of state abstract company in a semi-rural county of around 60k people. The foreclosure law firms have well over 100 files ready to order from them right when the they are allowed to get started.
 
We just built a new house and moved in a few weeks ago. The whole neighborhood is sold out now with the only the builders second section, they are holding the sell of final two homes due to costs rising. And every other neighborhood when we starting looking where to build was getting further and further out of town, and basically sold out, except for the one we found which had just opened. That builder doesn't have anything else now except a few lots in Georgetown or build on your own lot.

Since then, the whole market has gotten crazier. Even the suburbs entry level new builds in Leander, Taylor, Hutto have soid out so fast their future sections are not ready until next year. Inventory is extremely low and new builds are short simply because their lots sold out much faster than expected. The cost situation complicates timing of more.
Isnt the obvious next step to buy development tracks west and north of liberty hill? I don’t know why development needs to stop. Maybe there is an opportunity if the traditional developers are tapped out.
 
Yes, and expect that is under way. Does get quite far north, but will happen. There is still land in West Leander, Liberty Hill, and North Georgetown, not to mention east. Just needs to be developed.
 
I have a friend importing high quality construction grade and furniture grade plywood from Asia and Europe by the container load into Port of Houston. All 1/4“ 1/2” 5/8” and 3/4” 4x8. Says his prices are up some but he can still deliver
quantity.
 
No I get it. that's why I'm saying for all the first time home buyers and people that bought at the high market levels are going to feel the pain in the short future. If your a seller it's great, but not as a buyer.
I was offered just last month to sell my property and would make 4 times my money, but where would I go?
I would make a mistake and be in the same position as these new buyer are in so I'm going to hold.
Also consider if mortgage rates go up materially, which is possible, it will be substantially more difficult to sell that house that was overpaid for down the round if they need to exit that purchase.

Higher rates tend to decrease the population of potential buyers if purchase decisions are based on monthly mortgage payments.
 
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Not to sound overly simple, but I don't see this as a "political" issue.

The builders have slowed down construction because their materials costs have skyrocketed. This is largely due to lumber prices going up. Lumber prices are increasing mainly due to the fact that Canada isn't shipping/processing lumber. Canada isn't shipping/processing lumber because they're still shut down due to COVID.

Or, perhaps, the Canadian lumber industry is more-or-less back in business. The problem is simply that the supply chains have been emptied, because the industry was shut down for an extended period.

The issue is really a mismanagement/miscalculation with the supply chains surrounding COVID. Many businesses guessed their business would slow down at the start of the pandemic. They were wrong.

We make microprocessors? Clearly our business will slow down as a result of the overall economy contracting, and people will be making less big purchases like appliances and cars.

However, lets ignore the fact everyone will be working from home, and will need all the equipment and supplies to make the possible/efficient. Laptops, monitors, keyboards, mice, printers, better routers, etc.

We make plywood and 2x4's? Clearly our business will slow down as a result of the overall economy contracting, and people will not be buying new homes because they'll be scared about job security.

However, lets ignore the fact that everyone will be working from home (and most very secure in their job), with their wife and 2 kids in the house. The idea they may want more house to so they can have a home office is beyond our ability to comprehend. Furthermore, people that are actually out of work, and homeowners, and stuck at home cause they have nothing else to do, would never dream of buying some wood and starting a DIY project at the house.

I'm not trying to bash the decisions some of these companies made, but in hindsight, a lot of them were laughable.
Nice write-up. There is also a lot shortage. The industry shut down lot development the early part of Covid, house sales took off, and the lot development pipeline is having a hard time catching up. It takes two years to entitle and develop a tract of land, and land values have gone through the roof, making it tough to underwrite new projects. The housing market is the best I have seen in my 30 year career as a developer and the demographic drivers of our busines have a very long runway. Affordability is becoming an issue which will likely start showing up in the numbers late year, especially if interest rates go up.
 
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My buddy is VP of a central texas home builder. He said he could sell 100s of new build houses right now, but he could only start about 8 a month in each neighborhood. Why lock into a price today, if you can't start building for a months and the material costs could be substantially higher.

They opened a neighborhood up and created a waiting list for prequalified (with their lender) preferred buyers. Neighborhood section has twenty or so lots. The list was up to 200 in less than an hour.

I don't think it is slowing down yet, just builders getting smart with only selling what they can build (at least in Texas).
Interesting I have a lead for a job at a central Texas home builder and news like this was giving me pause and then you post this. It’s difficult to decide what is the right move, it is a real career path that could lead to a lot more money but I currently have a recession proof job and this jump would be for about 30K less although a chance for much more in the future.
 
Interesting.

I have read that one of the reasons for the housing bubble (if there is one) is because of the lack of foreclosures. That there are a couple of million foreclosures that would have occurred but for corvid and that many of these will come due a few months after the 6/30 deadline (unless it's extended).

What do you think of this possibility?
It’s absolutely something worth monitoring and could cause a huge flood in the market.
 
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I don't see it as political because i attribute it more to the pandemic's impact on consumer priorities and behavior, and disruption to the materials/supply.
Yeah I don’t see the political angle at all. Pure supply and demand issue exacerbated by an extremely rare housing market.
 
Interesting I have a lead for a job at a central Texas home builder and news like this was giving me pause and then you post this. It’s difficult to decide what is the right move, it is a real career path that could lead to a lot more money but I currently have a recession proof job and this jump would be for about 30K less although a chance for much more in the future.
I'm not in the industry, but I've heard that the Austin area won't have enough homes to meet demand for at least 10 years. I might ride that wave if I was in your position, but I've never taken a career risk so who am I to talk. admittedly, initial 30k/year loss is a hard pill to swallow.
 
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Nice write-up. There is also a lot shortage. The industry shut down lot development the early part of Covid, house sales took off, and the lot development pipeline is having a hard time catching up. It takes two years to entitle and develop a tract of land, and land values have gone through the roof, making it tough to underwrite new projects. The housing market is the best I have seen in my 30 year career as a developer and the demographic drivers of our busines have a very long runway. Affordability is becoming an issue which will likely start showing up in the numbers late year, especially if interest rates go up.
That is actually something I didn't know about the land development side of things.

When you say it takes two years to develop a tract of land...is that from buying the land and getting all the houses built on it? Or are you saying it takes two years after buying the land before any construction even starts?

Either way, its a long time.