Housingwire.com By Sarah Marx
In some ways, 2023 was the year of the homebuilder. There wasn’t much competition from existing homeowners. And with the ability to buy down consumers’ mortgage rates while still maintaining double-digit margins, new construction grew to comprise roughly 30% of total housing inventory in 2023, more than double a normal year.
The business appears durable, too. Many of the top national homebuilders have rosy forecasts for the coming year.
“The new home market has been extraordinary in 2023, and I think heading into 2024, we’re going to have the golden age of new home construction,” David O’Reilly, CEO of Howard Hughes, said in a recent CNBC interview.
Most housing market forecasters believe that the existing home-sales market will likely only improve slightly next year. Let’s look at the new construction forecast for 2024.
Economists believe that 2024 will be a slightly better year than 2023 for homebuilders, but that some headwinds will persist, especially for nonpublicly traded builders, who lack the economies of scale and access to capital markets that their larger cohorts possess.
At around 30% now, the homebuilding industry is likely near the peak level of new-home sales as ashare of the entire housing market, according to industry experts who spoke with HousingWire in August.
In terms of housing starts, a key measure of coming inventory, National Association of Realtors’ Chief Economist Lawrence Yun forecasts 1.04 million new single-family construction units in 2024. Ali Wolf, Zonda’s chief economist, predicts 930,000 new single-family construction units next year, while BTIG’s managing director and homebuilding analyst Carl Reichardt expects 980,000 new single-family units. For new home sales, BTIG forecasts 705,000 sales, while Zonda expects new home sales to remain flat year over year.
Here we go...
EPAB President’s Message
Jaime Gonzalez, President
El Paso Association of Builders
I find myself pondering what to write in this first message to you. Should I write about the madness that took over all of our lives since the pandemic? Should I write about the uncertainty of the market we are currently in? Or the rollercoaster that interest rates have been on? Should I write about the Political circus that seems to be never ending? Maybe an exercise on the power of the New Year, starting over, new goals and the value of reflection. I could write about the challenges that lay ahead as we begin to settle into our New Normal (which to me, feels a lot like our old normal).
I feel the need to provide you with a tasty morsel of industry insight or glass half full inspiration.
As my mind raced through the plethora of possible subjects, I realized one simple truth. I am not the expert in any of these subjects. There are many experts out there that spend countless hours analyzing and studying every different angle, variable, trend and what not of their area or matter of choice. And I, as I’m sure many of you, read their latest forecasts, projections, quotes and recommendations.
Instead, I decided to share with you a phrase that I sent a dear friend of mine a few days ago.
Life is great!!!
Yes, life is Nerve-racking, stressful, pain in the rear and exhausting. But all in all, Great!!
The challenges we face will never end, things will never be good enough, we will never have enough money or time. And the hardest one to accept, there will always be someone better looking!
With all the challenges we face, we are still lucky, we are blessed. We live in the best country in the world, we have family, we have friends. We live in an era of constant innovation and extreme comfort.
Life is what we make of it and the outside noise is the spice that keeps it interesting.
I wish you all the best this year. I look forward to seeing, working with and meeting you.
Life is great! If you don’t believe me, consider the alternative.
The outlook for 2024? It's complicated
By Ray Adauto
Executive Vice President, EPAB
The Biden administration doesn’t seem to get what an economic giant home building is. Day in and day out the struggles NAHB goes up against are going from bad to worse.
• The Fed didn’t raise the interest rates last time they met late last year, sending out indications of potential rate decreases in 2024. Now the Fed has backed off any comment on reducing the rate, at least for now. Continuing federal spending isn’t slowing and inflation continues. I suspect we may see some rate reduction, but not to any impactful degree.
• The last ten out of eleven Fed jobs report have been presented then downgraded afterwards by the administration. Why put them out? Probably trying to force a rate reduction from the Fed, but the kicker is inflation. Rate reduction and inflation are tied together.
• Word from NAHB that the Biden Administration has failed to make production of electrical transformers a priority, creating a backlog of these vital components. Who is not listening in Washington? Can’t electrify, can’t occupy.
• Add this. Resale homes are still in short supply. In December the market inventory for El Paso was still a “sellers” market. Low inventory translates into consumers holding off buying new, the effects perhaps of the interest rates.
How our industry responds to the issues I’ve outlined here is actually how we will experience 2024. It’s a complicated world as it is. Welcome to it.
SC Hears Arguments in Impact Fees Case
The U.S. Supreme Court heard arguments Tuesday in a case brought by a California home owner regarding a $23,000 traffic impact fee required to put a manufactured home on a small parcel of land. The case directly addresses jurisdictions trying to skirt the Takings Clause when seeking impact fees.
The case, Sheetz v. El Dorado County, involved George Sheetz, a California resident who in 2016 applied for a permit to build an 1,800- square-foot manufactured home on a residential-zoned lot he owned. The county imposed a $23,420 “traffic mitigation fee” on the permit. Sheetz protested the fee but ultimately paid it, and then immediately sued the county arguing the fee was improper.
At state court, Sheetz argued that the fee was not closely connected to or proportional to the actual impact his new residence would have on the roads, key tests laid out by precedent in two prior Supreme Court cases (commonly called the Nollan/Dolan test). The county countered that the test does not apply because the impact fee was authorized by legislation — from the county council in this case — rather than by bureaucracy.
A small number of state courts, including California’s, have carved out legal exceptions to the proportionality test if the fees in question are authorized by a legislative body. The Sheetz case directly addresses the constitutionality of such carve outs.
California state courts agreed with the county in this case, writing that the Nollan/Dolan test only applies to fees imposed on an individual basis, rather than fees — such as the traffic impact mitigation fee — authorized by legislation.
Sheetz further appealed the decision to the Supreme Court, noting there was disagreement on the question across states. NAHB and the California Building Industry Association (CBIA) supported Sheetz with an amicus brief urging the Supreme Court to take the case. After the Court agreed to hear it, NAHB and CBIA submitted a second brief supporting Sheetz on the merits of the case.
At oral arguments Tuesday, the justices — and even defendant’s council — seemed to agree with NAHB and CBIA on the pertinent question of legislative action shielding a government from the Takings Clause. NAHB and CBIA wrote that the Supreme Court has an opportunity to “make clear that there is no such ‘loophole’ in the prohibition against governmental demands for unconstitutional conditions.”
Justice Gorsuch noted that with such uniform agreement on the question, the case should simply be remanded to the lower courts so they can determine if the traffic fee falls under the Takings Clause.
An opinion is expected this spring. NAHB VP of Legal Advocacy Tom Ward also discusses the case and the Supreme Court arguments in the latest episode of NAHB’s podcast, Housing Developments.
Economic & Policy Blog
Elliot Eisenberg, Ph.D. is a nationally acclaimed economist and public speaker specializing in making economics fun, relevant and educational.
The U.S. economy grew by an unexpectedly strong 3.3% in 23Q4, and growth for the year was 3.1%, well above expectations and the dismal 0.7% in 2022. Credit belongs to consumers who were unrelenting in their spending, charging, borrowing, and buying-now-paying-later. The other major growth driver was government spending. As for 2024, government spending will grow very little and consumer spending will likely slow, leading to weaker GDP growth.
December existing housing sales slid to a seasonally adjusted annualized rate of 3.87 million, the lowest level since 8/10 and the end of the second round of ill-fated congressionally enacted first-time homebuyer incentives. Excluding that, 12/23 was the worst month since late 2008. 2023 sales were 4.09 million, the lowest since 1995, down from 5.03 million in 2022, and 6.12 million in 2021.
For pre-Covid year ending 2/20, interest payments totaled $550 billion and the average interest rate on all outstanding U.S. Treasuries was 2.4%. Interest payments and the average interest rate paid both bottomed out for the year ending 1/22 at $320 billion and 1.55%. For CY2023, interest payments were $750 billion and the average rate was 3.1%. The budget deficit has been disturbingly high on a regular basis since CY2016.
In 10/22, 63% of economists thought there would be a recession within 12 months. In 1/23, the percentage fell to 61%, where it remained in 4/23. In 7/23, it fell to 54%, and in 10/23 it declined to 48%, sub-50%! It’s now 39%. While that’s good news, contain your enthusiasm. In 12/07, a month before the Housing Bust began, just 38% expected a recession during the next year.
For office workers, 5.6% of full-time and hybrid workers received a promotion in 2023, compared to 3.9% for fully remote employees, with no difference in promotion rates between hybrid and full-time. Relatedly, female software engineers at Fortune 500 firms who worked in the same building as their teammates received 40% more feedback on their code than engineers who didn’t share offices. The gap was 18% for remote male engineers.
Pre-Covid, shrink (a fancy word for retail store theft) was about $50 billion/year and 1.4% of retail sales. In 2021, shrink rose to $94 billion but declined to 1.4% of retail sales with less in-person shopping. Since then, it’s steadily risen. In 2022, it was $112 billion and 1.6% of sales, and in 2023 shrink totaled $142 billion and 2% of sales, the highest percentage since at least 2015.
During November, 20 states experienced coincident economic growth with most of the remainder contracting, a few were flat. Since 1979, every time fewer than 23 states were expanding there’s been a recession. Worse, the number of growing states has been deteriorating for six straight months. The closest calls, in 1992 twenty-five states were expanding and in early 2003 twentythree states were growing, and both times a recession was avoided.