Tag Archive for Housing Starts

A UK housing bubble or something else?

UK+vs+US+home+prices[1]

Home prices in the UK continue to rise to new highs, exceeding the pre-recession peak. The price increases started in London and have now spread nationally. Many families are quickly being priced out of the housing market. Some are calling it a bubble.
The Guardian: – UK house prices continued to accelerate in February, rising by 1.9% during the month and pushing the annual rate of inflation to more than 9%, according to the latest data from the Office for National Statistics.

Commentators warned of a “superbubble” and said the market was “out of control” as the official figures reported year-on-year prices rises of 17.7% in London and said first-time buyers had experienced double-digit price growth.Just to put this in perspective, US home prices are now roughly at the levels they were a decade ago. UK home prices have risen over 40% over the same period.

Many are blaming the Bank of England’s so-called FLS (the Funding for Lending Scheme - see overview) for flooding the market with cheap mortgages. Indeed the program has resulted in lower bank financing costs and lower mortgage rates.

Source: BOE

But is all this cheap credit creating a speculative housing bubble in the UK or is there another factor at play? If you speak with British realtors, they tend to have one major complaint in common. The UK is facing a housing shortage as the post-recession home construction activity remains subdued.

Source:  Department for Communities and Local Government

Homes are being built at about half the rate needed to meet the pace of British households creation. But that is also partially the case in the US – so why such a divergence in house price trajectories between the two nations? The answer, according to Goldman, is that unlike the US and some other nations that went on a building spree during the bubble years, the UK was facing a housing shortage even before the financial crisis. The UK housing “bust” happened without the “boom”.

GS: – And, while the shortfall in house building has become more acute in the years since the financial crisis, the rate of house building was also inadequate before the crisis. Unlike countries such as the US, Ireland and Spain – where house building rose sharply in the years leading up to the crisis – the UK has experienced a post-crisis bust in housing supply, without having experienced a pre-crisis boom.

But with housing prices rising faster than wages, doesn’t it mean that this rally should be ending soon? Not necessarily. The acute housing shortage has put a similar upward pressure on rents as well, limiting housing options.

Source: GS

And while fewer people can purchase a home after the recession, those who can end up paying materially less on their mortgage than they would be paying in rent (thanks to FLS). They are jumping into the housing market and driving up prices.

Of course if the Bank of England pulls the plug on FLS, home price increases are likely to slow. The housing shortage however will still remain, resulting in higher demand for rentals. Whether paying more for a home purchase or paying a higher rent, one thing is clear: UK residents will be paying increasingly more for shelter in the years to come.

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Logan Mohtashami Talks to Kathleen Hays On His 2014 Housing Predictions

Logan Mohtashami, Benzinga Contributor Podcast of Interview with Bloomberg Financial http://media.bloomberg.com/bb/avfile/Economics/On_Economy/v9PUOKbnFMeE.mp3 2014 Housing Predictions http://loganmohtashami.com/2013/12/30/2014-housing-predictions/ Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1988. Logan is also a … Continue reading

For many Americans rising home prices are no cause for celebration – Sober Look

Economists and the markets have been cheering the jump in housing prices and improving construction statistics. But for many Americans rising demand and higher house prices bring more bad news. Based on the latest data (report below) from the Joint Center for Housing Studies, Harvard University (JCHS), here are some sad facts about the housing situation in the US.

1. The number of homes for sale is still near record lows. That is driving up costs and quickly pricing many households out of the market.

2. The US actually has a large number of vacant homes that are not making it into the market. Vacant homes are often in areas with few job opportunities, making it impossible to renovate, sell, or rent.  Many are in places like Detroit and simply will never be sold.

Source: JCHS

3. We are seeing the confluence of tight housing conditions and weak household incomes. As JCHS points out “most types of households have seen their real incomes decline over the past decade”. This is particularly true for growing households.

Source: JCHS

4. As a result, “the total number of households paying more than half their incomes for housing soared by 6.7 million from 2001 to 2011, a jump of 49 percent”. Note that this is a problem for both homeowners and renters.

Source: JCHS

5. Housing shortages (discussed here) and rapid renter household growth are driving up rents. At the same time, millions of federal rental subsidies for low income renters are set to expire in the next decade.

Source: JCHS

6. On top of all this is the fact that households are now forming at a rate of about a million per year. The market is demanding a million new residential units each year. Unless construction can keep up and prices decline or incomes rise (neither seems likely right now), this trend will drive up the number of households with “housing cost burdens” (already over 40 million – #4 above) – for both homeowners and renters.

JCHS housing report

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What’s behind the slowdown in residential construction? Sober Look

Given yesterday’s poor housing starts report, some economists are raising concerns about the sustainability of the positive momentum in residential construction.

The primary explanation for the latest decline seems to be the slowdown in apartment construction.

NAHB: – “While demand for new homes and apartments has grown considerably over the past year, builders are still being very careful not to get ahead of the market, and today’s report reflects that cautious approach,” said Rick Judson, Chairman of the National Association of Home Builders (NAHB) and a home builder from Charlotte, N.C.

“The large dip in multifamily production in June follows a boost of activity in May, and is consistent with the volatility that has come to characterize that sector as well as the uneven pace of the housing recovery,” noted NAHB Chief Economist David Crowe. “That said, the fact that single-family starts and permits both rose in three out of four regions in June is a positive sign that’s in keeping with our forecast as well as recent surveys in which single-family builders have registered an increasingly positive outlook.” The annualized rate of multifamily production declined 26.2 percent to 245,000 units in June after a 28.2 percent gain in the previous month.

Some have also attributed the slowdown to weather conditions.

There is another issue however that nobody wants to discuss. Anecdotal evidence suggests that the sudden rise in interest rates has spooked some developers who decided to cool things down a bit – at least until there is more certainty around rates and economic growth (we’ve seen glimpses of this earlier).

There is no question that construction will resume on its upward path, if for no other reason than demographics. The US population is growing at the rate of roughly 2.3 million per year and construction rates are just not keeping up.

But even a temporary slowdown in construction (particularly if caused by policy uncertainty) is bad news for the US economic growth, which remains fragile.

WSJ: – The weaker-than-expected housing activity could weigh even further on second-quarter growth estimates, which have already dropped below 1%.

BNP Paribas economists on Wednesday said the drop in June housing starts could shave 0.1 percentage point off their forecast of 0.8% annualized growth of gross domestic product in the second quarter.

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Where are all the construction jobs? – Sober Look

This is a syndicated repost courtesy of Sober Look. To view original, click here. The concept of US housing shortage (discussed here) is difficult to fathom, but people who are on the transaction side of the housing business are beginning to take notice. Bloomberg: – Wells Fargo Chief Executive Officer John Stumpf said there aren’t…