December column for Builder & Developer now posted online

My column for the December 2016 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "2016 in Review:  Continued Recovery from The Great Recession," I reviewed the current state of the U.S. economy and what we can expect in 2017.

An excerpt:

U.S. GDP—which had hovered closer to 1.0 percent during the previous three quarters—surged to 2.9 percent in the third quarter, due mostly to rising inventory of goods, higher exports, and more federal government spending.

Job growth, which rose by 161,000 in October, has averaged 181,000 per month throughout 2016. Although this is down 21 percent from 2015’s average level, it is still more than enough to keep up with population growth and continue putting downward pressure on the official unemployment rate.

To read the entire column, click here.

To read the entire December 2016 issue in digital format, click here.

A Look Ahead to 2017: Higher Interest Rates and Tight Housing Inventory

As recently as early November, most economists were working on their forecasts assuming things would remain much the same under a Clinton Administration. However, given the stunning Electoral College victory of Donald J. Trump – perhaps the world’s most famous builder and developer – most of those prognostications are now simply their best guesses.  Indeed, political uncertainty has emerged as the most important externality impacting not just the U.S. economy, but that of the world as well.

For 2017, the International Monetary Fund (IMF) is projecting global growth of 3.4 percent (2.2 percent for the U.S.) versus 3.1 percent in 2016 (1.6 percent for the U.S.), with this higher growth rate attributed mostly due to greater stabilization for energy and commodity prices as well as continued low interest rates.

However, the same forecast is also mindful of the potential economic fallout from political instability not just here at home, but also across Western and Eastern Europe, the Middle East as well as parts of Asia and South America.

So what does that mean for a Trump Administration?

It depends a lot whether or not the new President takes his own campaign promises seriously or literally.

In 2017, the general prognosis is for another good year for the housing market, which will also continue to be hamstrung by affordability pressures, high costs for finished lots, and a shortage of construction labor.

Given that 25 percent of construction jobs are held by foreign-born workers, stricter immigration policies could worsen this problem. Much of this impact could hit the types of starter homes demanded by Millennial buyers, who are expected to make up about one-third of the overall market.

In addition, Mr. Trump’s planned fiscal stimulus plans are already being baked into the financial markets cake, with interest rates for conforming, 30-year fixed rate mortgage rates rising by over 40 basis points within one month after November’s election. While that may require buyers to lower their sights on a certain price range, overall access to mortgage financing is expected to improve as both Fannie Mae and Freddie Mac increase the price of the homes they’ll back, while larger financial institutions have re-introduced mortgages with as little as one to three percent down.

Should Trump reverse the lending regulations required by Dodd-Frank, we would also expect to see the lending spigot open further, as the onus for foreclosed mortgages returns to the buyers versus the lenders who made them. Moreover, as interest rates rise and the percentage of refinancing drops, lenders will be more interested in making up that shortfall with more purchase loans.

The year 2017 should also be the start of an important demographic change, in which more higher-income Baby Boomers are retiring than can be replaced by younger Millennials moving into the workforce. We’ll start to see the impact of this over the next five to ten years, mostly in the form of more Millennials forming new households and buying that first starter home, many of which could be in more affordable, second-tier suburbs or cities.

However, given that demand for new homes may continue to exceed supply for several more years, that imbalance could continue to push prices up, thus exacerbating affordability constraints when also taking into consideration higher interest rates.

New home production will also remain tight by historical terms, as any favorable changes in national policy will take time to reach the construction site. Even though the national Leading Markets Index has returned to 98 percent of normal, new home production remains stubbornly low at about 60 percent of historical norms. While new home inventory did rise by just over nine percent between October of 2015 and 2016, the inventory timeline still shrunk from 5.6 to 5.2 months.

For now, builders are responding to affordability issues by building smaller single-family homes when possible, with the median size falling by over 1.5 percent to 2402 square feet between the third quarters of 2015 and 2016. At the same time, the median size for multi-family homes rose by five percent to 1092 square feet, as higher-quality townhomes, condominiums and apartments offer an acceptable single-family home substitute for entry-level buyers.

Finally, today’s greater aversion to risk may also impact the move-up market, especially if potential buyers with mortgage rates under four percent choose to stay in place by remodeling instead of leaping up to that next rung on the housing ladder.  In that case, higher interest rates may trump – pun intended – other factors.

Here’s to a happy and successful 2017!

2016 in Review: Continued Recovery from The Great Recession

At this same time a year ago, I wrote about a housing rebound that had continued its slow yet gradual climb back to normal.  The good news has continued in 2016, so much so that it’s widely expected for the Federal Reserve to hike its benchmark interest rate by the end of the year.

U.S. GDP -- which had hovered closer to 1.0 percent during the previous three quarters ---- surged to 2.9 percent in the third quarter, due mostly to rising inventory of goods, higher exports, and more federal government spending.

Job growth, which rose by 161,000 in October, has averaged 181,000 per month throughout 2016. Although this is down 21 percent from 2015’s average level, it is still more than enough to keep up with population growth and continue putting downward pressure on the official unemployment rate.

Nonetheless, there is an important caveat here to consider: Although a 4.9 percent unemployment rate implies that the economy is more or less at full employment, by also including discouraged workers, the under-employed and those persons marginally attached to the workforce, the unofficial unemployment rate rises to 9.5 percent – or exactly matching what it was in October 2015.

This higher unemployment rate is also why wages had been stubbornly flat during this long economic recovery, although over the last 12 months they did rise by 2.8 percent, thus giving workers a slight edge over inflation.

Speaking of inflation, after years of it remaining flat or even dipping into deflationary territory, it’s now returning, which is why higher interest rates are on the short-term horizon.  For the 12-month period ending in October, the Consumer Price Index rose 1.6 percent, and by 2.1 percent when subtracting out more volatile indices for energy and food.  Even the supply-side Producer Price Index rose by 1.6 percent during the same time period, which is a big jump from a year ago, when it was less than 0.5 percent per year.

Confidence is trending higher, with the University of Michigan’s Consumer Sentiment Survey edging up to 91.6 in its preliminary November reading – up 5.0 percent from October and 0.3 percent from a year ago. At the same time, builder confidence has remained at well over 60 for three consecutive months (anything over 50 is positive), and is approaching 70 for single-family home sales now as well as over the next six months.

Supporting this confidence was a surge in housing starts in October to a nine-year high, up by over 25 percent from the previous month and over 23 percent year-over-year to an annual rate of 1.3 million. Although October building permits rose by much smaller amounts, the annual rate of 1.2 million demonstrates that the strength in starts is likely to continue.

Still, given tight levels of supply in most markets, affordability remains a concern, with 61.4 percent of families earning the median income able to afford the median-priced home at prevailing interest rates in the third quarter of 2016. While this rating from the Wells Fargo Housing Opportunity Index is down sharply from the last high of 77.5 noted in the first quarter of 2012, it remains far above the previous trough of 40.4 set in the third quarter of 2006.

Single-family new home sales, which dipped in August, rebounded by over three percent in September to 593,000 per year, and were up by nearly 30 percent year-over-year. So far in 2016, new home sales have averaged 564,000 per month. At current sales rates, existing inventory would take 4.8 months to sell, down a full month from a year ago.

For existing homes, sales also rebounded 3.2 percent in September to 5.47 million per year, but are up just 0.6 percent year-over-year. Much of this increase was due to the share of first-time buyers reaching 34 percent, for the highest rate seen in over four years. Although September inventory rose slightly to just over two million homes – or a timeline of 4.5 months -- it has fallen year-over-year for 16 consecutive months.

Looking ahead to 2017, pre-election forecasts had suggested a GDP growth rate of two percent. Meanwhile, the NAHB is calling for single-family starts to rise by 12 percent, multi-family starts to decline by two percent after a strong showing in recent years, and remodeling activity to surge by 23 percent. For all non-residential projects, Associated Builders and Contractors (ABC) is forecasting growth of three percent, with commercial projects rising by over eight percent and industrial projects shrinking four percent.

Economic Update: Overall Improvement since the First Quarter of 2016

In its July monthly meeting, the Federal Reserve Open Market Committee – which decides on interest rate policy – left the door open to whether or not we’ll see another rate hike in 2016. The good news is that the expected impacts from Brexit have been largely subdued.  In addition, the economy seems to be on a more normal path, with both June and July showing monthly job growth of 255,000 to 287,000, and an official unemployment rate of 4.9 percent.

GDP, which was just 0.8 percent in the first quarter of the year, was initially reported to have risen to 1.2 percent by the second quarter.  Moreover, in mid-August, the Federal Reserve Bank of Atlanta had estimated third-quarter GDP growth at 3.6 percent, and boosted its forecast for residential investment growth from 0.4 to 2.4 percent.

Inflation is also stable, with the Consumer Price Index flat in July but rising by just 0.8 percent over the previous 12 months.  However, when subtracting out the more volatile indicators for food and energy, prices have risen by 2.2 percent over the previous year.  With an annual inflation target of 2.0 percent, should job growth reports remain positive in the coming months, then the Federal Reserve may hike interest rates before the end of 2016. Still, not all sectors of the economy are feeling the inflation pinch, with the Producer Price Index falling 0.4 percent in July and still down 0.2 percent for the previous 12 months, which is also why a rate hike is not a given.

For now, consumers remain cautious, with The Conference Board’s Consumer Confidence holding steady at just over 97 on a 100-point scale in July after rising in June.  This latest survey suggests that although the economy will continue expanding at a moderate pace, attitudes regarding the job market and personal incomes remain cautiously optimistic.

Builder confidence is also positive, rising by two points to 60 in August, in which anything over 50 is positive.  The index measuring current sales rose two points to 65, while the index for sales expectations over the next six months rose one point to 67.

In the commercial real estate sector, CoStar’s value-weighted U.S. Composite Index, which focuses on the sales prices of higher-quality assets, advanced by 3.3 percent during the second quarter of 2016, while the equal-weighted U.S. Composite Index, which includes more sales of smaller properties, rose 2.1 percent. While the office, industrial and retail indices all rose by 1.9 percent and the multi-family index increased by a close 1.8 percent, by far the most improved sector was hospitality, rising 4.5 percent to within one percent of its former peak.

Looking closer at housing, sales of new single-family homes rose for the fifth straight month in July to surpass 650,000 annual units, for a notable jump of over 31 percent from July 2015 and reaching the highest pace of new home sales since October 2007. In addition, at this sales rate, existing inventory would take just 4.3 months to sell, versus 5.2 months a year earlier, and falling to the lowest inventory level since June 2013. For all of 2016, the NAHB is forecasting single-family home starts to rise by about 10 percent, as those in the multi-family sector level off.  Nonetheless, future residential growth will continue to be hampered by shortages of labor and lots and higher regulatory costs.

In the existing home market, after four consecutive months of increases, July sales not only tumbled by 3.2 percent from June, but were also down 1.6 percent from the same month of 2015.  NAR is blaming this on a lack of affordably priced inventory, especially for starter condominium homes. As proof of this, the Wells Fargo Home Opportunity Index fell to 62.0 percent in the second quarter of 2016, the lowest rate since the third quarter of 2014. Over the last year, inventory levels have fallen by 5.8 percent and have declined year-over-year for the last fourteen months.  Consequently, with some buyers priced out of the market even at low interest rates, overall inventory levels would take 4.7 months to sell, up from 4.5 months in June.

Of course this demand for new supply is certainly good news for builders!  Although July housing starts were up 5.6 percent year-on-year, building permits inched up only 0.9 percent for the same time period. Yet given the challenges facing the industry including regulations, labor shortages and the difficulty finding affordably priced land, lack of available housing supply may be with us for some time.

Consumer confidence inches up to 90.4 in August

Confidence inched upward in early August due to more favorable prospects for the overall economy offsetting a small pullback in personal finances. Home buying has become particularly dependent on low interest rates, with net references to low interest rates spontaneously mentioned by 48%.

READ MORE

Builder confidence rises two points in August to 60

Builder confidence in the market for newly constructed single-family homesin August rose two points to 60 from a downwardly revised reading of 58 in July. The component gauging current sales conditions rose two points to 65, while the index charting sales expectations in the next six months increased one point to 67.

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Retail sales flat in July but still up 2.3 percent year-on-year

Retail sales were unchanged in July, coming off a revised 0.8 percent increase in June. Retail sales in June were previously reported to have increased 0.6 percent. Sales rose 2.3 percent from a year ago.

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Producer Price Index declined 0.4 percent in July and 0.2 percent for previous 12-month period

The Producer Price Index for final demand decreased 0.4 percent in July. On an unadjusted basis, the final demand index moved down 0.2 percent for the 12 months ended in July.

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Job openings edged up in June and layoffs dropped to lowest level in nearly two years

U.S. job openings increased in June and layoffs dropped to their lowest in nearly two years as labor market conditions tightened further.

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Job growth surged to 255,000 in July vs. 188,000 expected

Total nonfarm payroll employment rose by 255,000 in July, and the unemployment rate was unchanged at 4.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, health care, and financial activities. Employment in mining continued to trend down.

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Planned job layoffs rose 19 percent in July but still down 8.7 percent year-to-date

The pace of layoffs ticked up 19 percent in July, as employers announced plans to shed 45,346 workers from their payrolls.  To date, employers have announced 359,100 job cuts in 2016. That is down 8.7 percent from the 393,368 job cuts announced from January through July 2015.

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Service sector index fell 1.0 percentage point in July but still well into positive growth territory

The NMI® registered 55.5 percent in July, 1 percentage point lower than the June reading of 56.5 percent.  Most comments reflect stability and continued growth for their respective companies.

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Manufacturing sector index fell 0.6 percentage point in July but still indicates growth

The July PMI® registered 52.6 percent, a decrease of 0.6 percentage point from the June reading of 53.2 percent and posting growth in the manufacturing sector for the fifth consecutive month.

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Personal income and consumer spending both rose in June

Personal income increased $29.3 billion (0.2 percent), disposable personal income (DPI) increased $24.6 billion (0.2 percent) and personal consumption expenditures (PCE) increased $53.0 billion (0.4 percent) in June.

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Private sector jobs grew by 179,000 in July

Private sector employment increased by 179,000 jobs from June to July according to the ADP Employment Report.

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Construction spending drops 0.6 percent in June, mostly due to non-residential projects

U.S. construction spending fell for a third straight month in June with spending on nonresidential construction dropping by the largest amount in six months.  Some analysts believe warmer-than-normal winter weather caused builders to move up the start of some projects, causing the second quarter to look weaker.

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Second quarter 2016 GDP rose at 1.2 percent in advance estimate

Real gross domestic product increased at an annual rate of 1.2 percent in the second quarter of 2016 according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.8 percent.

The Bureau emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source. The "second" estimate for the second quarter, based on more complete data, will be released on August 26, 2016.

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Employment costs rose 0.6 percent in 2Q 2016 and 2.3 percent year-on-year

Compensation costs for civilian workers increased 0.6 percent, seasonally adjusted, for the 3-month period ending in June 2016.  Over the last 12 months, compensation costs for civilian workers increased 2.3 percent.

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Consumer sentiment dips slightly in July to 90.0

Consumers were a bit less optimistic in July than one month or one year ago, although consumer confidence remains at a reasonable high level. The recent decline was due to rising concerns about prospects for the economy, that were mainly expressed by upper income households.

Uncertainties surrounding global economic prospects and the presidential election have made consumers more cautious in their expectations for future economic growth as well as employment growth. Strength in personal finances and low interest rates will maintain the growth in real consumption at 2.6% through mid 2017.

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Federal Reserve keeps interest rates at current levels but acknowledges improving economy

Information received since the Federal Open Market Committee met in June indicates that the labor market strengthened and that economic activity has been expanding at a moderate rate.

Job gains were strong in June following weak growth in May. On balance, payrolls and other labor market indicators point to some increase in labor utilization in recent months. Household spending has been growing strongly but business fixed investment has been soft. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports.

Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance, in recent months.

Against this backdrop, the Committee decided to maintain the target range for the federal funds rate at 1/4 to 1/2 percent.

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Pending home sales inched up 0.2 percent in June; up 1.0 percent year-on-year

Pending home sales were mostly unmoved in June, but did creep slightly higher as supply and affordability constraints prevented a bigger boost in activity from mortgage rates that lingered near all-time lows through most of the month,

The Pending Home Sales Index inched 0.2 percent to 111.0 in June from 110.8 in May and is now 1.0 percent higher than June 2015 (109.9). With last month's minor improvement, the index is now at its second highest reading over the past 12 months, but is noticeably down from this year's peak level in April (115.0).

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Consumer confidence mostly unchanged in July after June's rise

Consumer confidence held steady in July, after improving in June. Consumers were slightly more positive about current business and labor market conditions, suggesting the economy will continue to expand at a moderate pace. Expectations regarding business and labor market conditions, as well as personal income prospects, declined slightly as consumers remain cautiously optimistic about growth in the near-term.

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May Case-Shiller Index up 1.2 percent from April and 5.0 percent year-on-year

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.0% annual gain in May, the same as the prior month. Before seasonal adjustment, the National Index posted a month-over-month gain of 1.2% in May.

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June new home sales rise to highest level in nearly 8.5 years

New U.S. single-family home sales rose more than expected in June, reaching their highest level in nearly 8.5 years.  Sales were up 3.5 percent from May and 25.4 percent year-on-year to a seasonally adjusted annual rate of 592,000.  With this increase, new home sales in the second quarter are well above their average for the first three months of the year.

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The State of Infill Development

In the year 1900, less than 46 percent of the U.S. population lived in urban areas. Fast-forward to 2016, and that percentage is now over 82 percent, and expected to keep growing as exurbs are added to existing metropolitan boundaries and cities become denser.

In addition, as existing land uses and buildings continue to become obsolete, urban infill will certainly be a crucial part of meeting future demand for not just housing, but also offices, services, entertainment and whatever the future is for ‘brick and mortar’ retail outlets.

To be sure, infill projects enjoy many advantages, including tapping existing infrastructure and transit options, closer proximity to retail stores and services, and even potential incentives provided by local government.  Yet there are also serious challenges for even the most seasoned builder, including increased and unique project costs, longer time frames to receive entitlements, and the need to appeal not just to residents or tenants, but also to the surrounding neighbors.

More recently, according to Tom Doyle, co-founder and principal of WDLand in Irvine, California, which has been at the forefront of infill sites since being launched in 1996, another recent challenge is the disconnect on perceived land values between buyer and seller.

As Doyle explains, there are three reasons for this over the past two years:  Higher direct site improvement costs, steeper development fees and a more restrictive and time-consuming regulatory process, especially for greenfield sites.  The result has been lower residual land values than what sellers would have hoped. Moreover, he adds that because those providing equity and debt all prefer core areas, it’s become an extremely competitive market for builders in search of decent volume.

Infill development also presents a different challenge for builders accustomed to creating traditional subdivisions.  Justin Esayian, a broker with The Hoffman Company of Irvine, cautions that simply selling a project in an infill location doesn’t guarantee success.  “Builders have had mixed results in infill markets, and that has given them pause,” he explains.  “Their unit count is generally lower and the projects are more complicated to construct or not familiar to them, and costs can escalate out of control.”

That’s also why due diligence and market research is so important for infill sites, especially at the earliest stages. According to Doyle, it’s crucial for builders to do their community outreach and with the cities, noting that some are simply not being diligent enough with the cities and other jurisdictions.  Esayian agrees, adding that when builders try to entitle with only residential volume in mind, they often get their hand slapped, and that even adding in some token retail fronting the street can help them obtain approvals.

So what’s popular today for infill communities?  Doyle finds that small-lot, single-family detached product can often yield the highest residual values, although a lot depends on the allowable densities per city code.  Even denser attached homes above 20 to the acre are still attractive, although he adds that podium-style product is difficult unless it’s along the coast or higher-priced areas such as West Los Angeles.

From his experience, Esayian suggests that builders take a second look at three-story detached homes selectively, because they often “live far better than two-story designs; while you have that extra staircase, you’ve got much more room to move around, and the livability increases.”  Even so, even the best three-story plans perform well in certain urban submarkets, but less so in more suburban ones.  In addition, he’s seeing a ‘proliferation of roof decks’ commanding premiums, but don’t put them everywhere, as they’re often more appropriate for more contemporary architecture.

As for non-residential infill uses, Doyle points to The Anaheim Packing House, where developer Lab Holdings repurposed a former 42,000-square-foot Sunkist facility dating from 1919 into a wildly popular collection of more than 20 small restaurants under a single roof.

Anaheim Packing House

Started by former fashion industry executive Shaheen Sadeghi in 1991, Lab Holdings become famous for its ‘Anti-Mall’ redevelopment of an abandoned factory two years later, and has become a favored partner with Orange County cities in need of creative solutions.

Meanwhile, over in nearby Costa Mesa, Esayian was instrumental in finding a joint venture partner for the redevelopment of the former L.A. Times printing press site in Costa Mesa. To be known as The Press, about 300,000 square feet of creative office space will be repurposed and developed on a roomy 25-acre site along with amenities like volleyball courts, grills and outdoor seating now popular even with law firms as well as advertising agencies.

The Press

Philadelphia Fed's Business Outlook Survey falls slightly in July

Manufacturing activity in the region fell slightly in July, according to firms responding to this month’s Manufacturing Business Outlook Survey. Although the indicator for current general activity turned negative, indicators for new orders and shipments were positive. The survey’s index of future activity improved slightly, and firms expect growth in new orders and shipments over the next six months.

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Leading Economic Index rebounded in June

The U.S. LEI picked up in June, reversing its May decline. Improvements in initial claims for unemployment insurance, building permits, and financial indicators were the primary drivers. While the LEI continues to point to moderating economic growth in the U.S. through the end of 2016, the expansion still appears resilient enough to weather volatility in financial markets and a moderating outlook in labor markets.

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BuilderBytes' MetroIntelligence Economic Update for 7/22/16

Please click here to see the edition of BuilderBytes for 7/22/16 on the Web.

In this issue of the MetroIntelligence Economic Update, I covered the following indicator

• Existing home sales rose for the fourth straight month in June
• FHFA:  Home prices up 0.2 percent in May and 5.6 percent year-on-year
• Mortgage applications dip 1.3 percent in latest survey
• Initial unemployment claims fall 1,000 in latest report

Want to advertise in the newsletter and reach over 130,000 readers? Contact the editor at nslevin@penpubinc.com.

BuilderBytes' MetroIntelligence Economic Update for 7/21/16

Please click here to see the edition of BuilderBytes for 7/21/16 on the Web.

In this issue of the MetroIntelligence Economic Update, we covered the following indicators:

• June building permits up 1.5 percent from May but down 13.6 percent year-on-year
• June housing starts up 4.8 percent from May but down 2.0 percent year-on-year

Want to advertise in this three-times-per-week newsletter and reach over 130,000 readers? Contact the editor at nslevin@penpubinc.com.

Register now for 7th annual Inland Empire Economic Forecast Conference on 9/29/16!

Want to know what to expect for the Inland Empire economy now through 2035?

Please join MetroIntelligence, Beacon Economics and UC Riverside for the 7th annual Inland Empire Economic Forecast Conference on September 29, 2016 in Riverside.

Use our special discount code to save $25 to register!

For more info, visit http://conference.economicforecasting.org/

What was the impact of Brexit on Britain's property market?

Now that American stock markets have more than regained the losses sustained after the pro-Brexit vote, another question remaining is the impact on the property market.

What’s in store for the property market post Brexit?

In the weeks leading up to the EU referendum, there was much speculation about the potential impact of a leave vote. George Osborne, chancellor of the Exchequer and effectively the No. 2 official in the British government, warned that house prices could fall by as much as 18% by 2018 - a forecast branded as 'scaremongery' by leave campaigners. The International Monetary Fund also agreed that Brexit would trigger sharp drops in house prices.

Now that the result is known and the dust has started to settle, everyone is wondering how Britain leaving the Union will affect them. The only thing that’s certain in the current climate is uncertainty.

Homeowners and Landlords

In the Bank of England’s bi-annual Financial Stability Report released recently, economist and bank Governor Mark Carney warned that “conditions will be difficult” for future mortgage borrowers due to the economic volatility in the past week.

For existing homeowners and landlords, the predicted drop in house prices is worrying. Falling house prices and inflated interest rates could cause fluctuation in loan to value ratios, resulting in negative equity.

Landlord insurance provider HomeLet reported in its most recent Rental Index that rents have continued to rise in the first half of the year, although they have slightly slowed during the past last year in the wake of the UK deciding to leave the EU.

The average rent (excluding Greater London) has risen to £773 (US$1,031) per month, which is 3.5 per cent higher than last year, according to the report. Average rent in London has risen to £1,575 (US$2101) per month, up 3.9 per cent over the last year.

Housing crisis

One prediction made by the Leave Campaign was that the housing crisis would be resolved by leaving the EU. This prediction was made on the assumption that the demand for housing would be decreased by reduced immigration. However, sharp drops in share prices caused by the leave vote may mean that house builders will not be able to secure funding for new developments, resulting in housing targets not being met. Berkeley and Barratt Developments both experienced a significant drop, followed by a slight rise, in share prices.

Commercial property

Commercial property funds, with over £9bn ($US12bn) of investors’ money, halted redemptions early in July after an increase in investors withdrawing. Companies including M&G, Aviva and Standard Life all made this move, with others expecting to follow. Share prices have gradually stabilized, but there is still widespread uncertainty.

June building permits up 1.5 percent from May but down 13.6 percent year-on-year

Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 1,153,000. This is 1.5 percent above the revised May rate of 1,136,000, but is 13.6 percent below the June 2015 estimate of 1,334,000.

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June housing starts up 4.8 percent from May but down 2.0 percent year-on-year

Privately-owned housing starts in June were at a seasonally adjusted annual rate of 1,189,000. This is 4.8 percent above the revised May estimate of 1,135,000, but is 2.0 percent below the June 2015 rate of 1,213,000.

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BuilderBytes' MetroIntelligence Economic Update for 7/19/16

 

Please click here to see the edition of BuilderBytes for 7/19/16 on the Web.

In this issue of the MetroIntelligence Economic Update, we covered the following indicators:

• Builder confidence dips one point to 59 in July
• CPI rose 0.2 percent in June and 1.0 percent over previous 12 months
• Retail sales up 0.6 percent in June and 2.7 percent year-on-year
• Consumer sentiment declines in mid-July after Brexit vote

Want to advertise in this three-times-per-week newsletter and reach over 130,000 readers? Contact the editor at nslevin@penpubinc.com.

Consumer sentiment declines in mid-July after Brexit vote

The early July decline in consumer sentiment was due to increased concerns about prospects for the national economy that were mainly voiced by high income households. Importantly, the least affected components have been personal finances and buying plans.

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Builder confidence dips one point to 59 in July

Builder confidence in the market for newly built, single-family homes in July fell one point to 59 from a June reading of 60 The components measuring current sales expectations and buyer traffic each fell one point to 63 and 45, respectively. The index measuring sales expectations in the next six months posted a three-point decline to 66.

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Retail sales up 0.6 percent in June and 2.7 percent year-on-year

Retail sales rose 0.6 percent last month after gaining 0.2 percent in May. It was the third consecutive month of increases, and it lifted sales 2.7 percent from a year ago.

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CPI rose 0.2 percent in June and 1.0 percent over previous 12 months

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in June. Over the last 12 months, the all items index rose 1.0 percent while the index minus food and energy rose 2.3 percent.

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BuilderBytes' MetroIntelligence Economic Update for 7/15/16

Please click here to see the edition of BuilderBytes for 7/15/16 on the Web.

In this issue of the MetroIntelligence Economic Update, I covered the following indicators:

• Producer Price Index rose 0.5 percent in June, up 0.3 percent over previous 12 months
• Federal Reserve Beige Book shows modest expansion from mid-May through late June
• Job openings slid nearly six percent in May
• Wholesale inventories rose just 0.1 percent in May as car dealers held off on new inventory
• Mortgage applications rise 7.2 percent in latest survey as rates dip further
• Initial unemployment claims largely unchanged in most recent report

Want to advertise in the newsletter and reach over 130,000 readers? Contact the editor at nslevin@penpubinc.com.

Initial unemployment claims largely unchanged in most recent report

In the week ending July 9,initial unemployment claims were 254,000, unchanged from the previous

week's unrevised level of 254,000. The 4-week moving average was 259,000, a decrease of 5,750 from the previous week's unrevised average of 264,750.

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Mortgage applications rise 7.2 percent in latest survey as rates dip further

The Market Composite Index increased 7.2 percent on a seasonally adjusted basis from one week earlier, with purchase loans unchanged but refinances up 11 percent.  Last year, the Fourth of July fell on the prior week. The average contract interest rate for 30-year fixed-rate mortgages decreased to its lowest level since May 2013, 3.60 percent.

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Federal Reserve Beige Book shows modest expansion from mid-May through late June

Reports from the twelve Federal Reserve Districts indicate that economic activity continued to expand at a modest pace across most regions from mid-May through the end of June.

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Producer Price Index rose 0.5 percent in June, up 0.3 percent over previous 12 months

The Producer Price Index for final demand increased 0.5 percent in June. The final demand index advanced 0.3 percent for the 12 months ended in June, the largest 12-month increase since moving up 0.9 percent in December 2014.

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Mortgage applications rise 7.2 percent in latest survey as rates dip again

The Market Composite Index increased 7.2 percent on a seasonally adjusted basis from one week earlier. The Refinance Index increased 11 percent from the previous week. The seasonally adjusted Purchase Index was unchanged from one week earlier. Last year, the Fourth of July fell on the prior week.

The average contract interest rate for conforming 30-year fixed-rate mortgages decreased to its lowest level since May 2013, 3.60 percent, from 3.66 percent.

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Job openings slid nearly six percent in May

Job openings slid to 5.5 million in May, the fewest since December and down nearly 6 percent from a record 5.8 million in April. Employers hired 5 million people in May, down slightly from April. The number of people quitting their jobs, which can reflect workers' confidence in their job prospects, also ticked down in May.

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BuilderBytes' MetroIntelligence Economic Update for 7/12/16

 

Please click here to see the edition of BuilderBytes for 7/12/16 on the Web.

In this issue of the MetroIntelligence Economic Update, we covered the following indicators:

• Planned job cuts rose 28 percent in June but still 26 percent lower than the 12-month average
• Federal Reserve opts to leave interest rates steady in wake of Brexit vote
• Initial unemployment claims fell by 16,000 in latest report
• Mortgage applications rose 14.2 percent in latest survey as rates dip to lowest level since May 2013
• 287,000 jobs created in June as unemployment rate rebounded to 4.9 percent
• Consumer credit rose more than 6 percent in May due largely to more car loans

Want to advertise in this three-times-per-week newsletter and reach over 130,000 readers? Contact the editor at nslevin@penpubinc.com.

287,000 jobs created in June as unemployment rate rebounds to 4.9 percent

Some key takeaways:

• Total nonfarm payroll employment increased by 287,000 in June, and the unemployment rate rose to 4.9 percent. Job growth occurred in leisure and hospitality, health care and social assistance, and financial activities. Employment also increased in information, mostly reflecting of workers from a strike.

• Both the labor force participation rate, at 62.7 percent, and the employment-population ratio, at 59.6 percent, changed little in June.

• The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) decreased by 587,000 to 5.8 million in June, offsetting an increase in May.

• In June, 1.8 million persons were marginally attached to the labor force, about unchanged from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey

• Among the marginally attached, there were 502,000 discouraged workers in June, down by 151,000 from a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.3 million persons marginally attached to the labor force in June had not searched for work for reasons such as school attendance or family responsibilities.

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BuilderBytes' MetroIntelligence Economic Update for 7/8/16

Please click here to see the edition of BuilderBytes for 7/8/16 on the Web.

In this issue of the MetroIntelligence Economic Update, I covered the following indicators:

• ADP: Private sector jobs grew by 172,000 in June
• Planned job cuts rose 28 percent in June but still 26 percent lower than the 12-month average
• Federal Reserve opts to leave interest rates steady in wake of Brexit vote
• Initial unemployment claims fell by 16,000 in latest report
• Mortgage applications rose 14.2 percent in latest survey as rates dip to lowest level since May 2013

Want to advertise in the newsletter and reach over 130,000 readers? Contact the editor at nslevin@penpubinc.com.

Mortgage applications rose 14.2 percent in latest survey as rates dip to lowest level since May 2013

The Market Composite Index increased 14.2 percent from one week earlier, with refinances up 21 percent and purchase loans rising by 4 percent. The average contract interest rate for 30-year fixed-rate mortgages decreased to its lowest level since May 2013, 3.66 percent.

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Initial unemployment claims fell by 16,000 in latest report

In the week ending July 2, initial unemployment claims were 254,000, a decrease of 16,000 from the previous week's revised level. The 4-week moving average was 264,750, a decrease of 2,500 from the previous week's revised average.

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Planned job cuts rose 28 percent in June but still 26 percent lower than the 12-month average

Job cut announcements were up 28 percent last month to 38,536, but they increased from the lowest total of the year to the second lowest of the year. The June total is still 26 percent lower than the 53,049 monthly job cuts averaged over the past year.

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ADP: Private sector jobs grew by 172,000 in June

Private-sector employment increased by 172,000 from May to June, on a seasonally adjusted basis. Job growth remains healthy except in the energy and trade-sensitive manufacturing sectors.

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BuilderBytes' MetroIntelligence Economic Update for 7/7/16

Please click here to see the edition of BuilderBytes for 7/7/16 on the Web.

In this issue of the MetroIntelligence Economic Update, we covered the following indicators:

• Construction spending unexpectedly fell 0.8 percent in May
• Manufacturing sector index registered growth in May for fourth straight month
• Service sector economy index rebounded strongly in June
• Factory orders declined one percent in May, but order backlogs grew
• Corelogic HPI shows May home prices rose 5.9 percent year-on-year and 1.3 percent from April

Want to advertise in this three-times-per-week newsletter and reach over 130,000 readers? Contact the editor at nslevin@penpubinc.com.

Federal Reserve delays future interest rate hike due largely to Brexit fall-out

Federal Reserve officials, already worried about surprisingly weak U.S. job growth, expressed concerns at their most recent meeting last month over the potential economic and financial market consequences of a British vote to leave the European Union.  Consequently, they decided on June 15 to hold their benchmark interest rate steady at between 0.25% and 0.5%.

They also said they wanted to see more data to determine if May's low job growth of 38,000 was an exception or a sign of a more pronounced labor market slowdown.

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Factory orders declined one percent in May, but order backlogs grew

New orders for U.S. factory goods fell by one percent in May, but growing order backlogs and lean inventories suggested the worst of the manufacturing downturn was probably over.

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Service sector economy index rebounded strongly in June

The NMI registered 56.5 percent in June, 3.6 percentage points higher than the May reading of 52.9 percent. Overall, the report reflects a strong rebound from the 'cooling-off' of the previous month for the non-manufacturing sector.

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Corelogic HPI shows May home prices rose 5.9 percent year-on-year and 1.3 percent from April

Home prices nationwide, including distressed sales, increased year over year by 5.9 percent in May 2016 compared with May 2015 and increased month over month by 1.3 percent in May 2016 compared with April according to the Corelogic HPI.

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BuilderBytes' MetroIntelligence Economic Update for 7/1/16

Please click here to see the edition of BuilderBytes for 7/1/16 on the Web.

In this issue of the MetroIntelligence Economic Update, I covered the following indicators:

• Pending home sales dipped in May year-on-year for the first time in almost two years
• Conference Board:  Consumer confidence rebounds in June after May decline
• Personal income, consumer spending and prices all rose in May while savings rate dipped slightly
• Chicago PMI rose in June to highest level since January 2016
• Mortgage applications dip 2.6 percent even as rates edge down to lowest level since May 2013
• Initial unemployment claims rise 10,000 in latest report

Want to advertise in the newsletter and reach over 130,000 readers? Contact the editor at nslevin@penpubinc.com.

Manufacturing sector index registered growth in May for fourth straight month

The June PMI registered 53.2 percent, an increase of 1.9 percentage points from the May reading of 51.3 percent. Manufacturing registered growth in June for the fourth consecutive month.

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Construction spending unexpectedly fell 0.8 percent in May

Construction spending in the U.S. unexpectedly decreased in the month of May, falling 0.8 percent to an annual rate of $1.143 trillion.

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June column for Builder & Developer magazine now online

My column for the June 2016 issue of Builder and Developer magazine is now posted online.

For this issue, entitled "The Evolution of the Smart Home," I reviewed the current state of the smart home, and how the industry can help propel it from the domain of the early adopter to a mass-market necessity:

An excerpt:

It should come as no surprise that the average consumer in 2016 has a general idea of what a smart home is, with a recent study estimating that 30 million U.S. households will add smart home technology in the next 12 months.

But what may surprise you is that the market remains largely the domain of early adopters – including the purchasers of new homes – because the hype doesn’t yet match the reality.

If, as market researcher Gartner is predicting, the typical family home could contain more than 500 smart devices by 2022, the transition from early adopter to mainstream consumer will require simplicity and ease of use over shiny, new products which don’t serve to budge the status quo.

To read the entire column, click here.

To read the entire June 2016 issue in digital format, click here.

BuilderBytes' MetroIntelligence Economic Update for 6/30/16

Please click here to see the edition of BuilderBytes for 6/30/16 on the Web.

In this issue of the MetroIntelligence Economic Update, we covered the following indicators:

• Pending home sales dipped in May year-on-year for the first time in almost two years
• Case-Shiller Index rose 5.0 percent year-on-year and 1.0 percent from March
• First quarter GDP growth revised up to 1.1 percent in third and final estimate
• Consumer sentiment dips in June, but no recession is anticipated
• Durable goods orders fell sharply in May, mostly due to lower defense aircraft demand

Want to advertise in this three-times-per-week newsletter and reach over 130,000 readers? Contact the editor at nslevin@penpubinc.com.

Initial unemployment claims rise 10,000 in latest report

In the week ending June 25, initial unemployment claims were 268,000, an increase of 10,000 from the previous week's revised level. The 4-week moving average was 266,750, unchanged from the previous week's revised average.

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Mortgage applications dip 2.6 percent even as rates edge down to lowest level since May 2013

The Market Composite Index decreased 2.6 percent on a seasonally adjusted basis from one week earlier.  The average contract interest rate for 30-year fixed-rate mortgages fell to its lowest level since May 2013, 3.75 percent.

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Chicago PMI rose in June to highest level since January 2015

The PMI Chicago Business Barometer rose 7.5 points to 56.8 in June from 49.3 in May, the highest since January 2015, led by strong gains in New Orders and Production.

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As Baby Boomers Retire en Masse, They’ll Demand Different Housing Options

Four years ago, the first wave of the enormous Baby Boom generation reached the age of 66, and therefore able to receive Social Security and Medicare benefits.  Over the course of the next fifteen to twenty years, more of this group of 76 million will eventually join these early adopters, and in so doing will undoubtedly have an outsized impact on the U.S. housing market.

Much has been written lately about the relative affluence of this cohort and what that means for retirement housing.  Not only is the poverty rate for people age 65 and over lower than any other age group, but over 80 percent own their own home.  This group is also remarkably stable by today’s standards, with about 75 percent of those in their late 60s to early 70s in a marriage.  Older Boomers can also generally look forward to greater longevity, with life expectancy for a 65-year-old American now another 17.7 years for males and 20.3 years for females, or three to four more years versus the previous generation.

As they move into this next stage of life, Boomers are also expected to redefine retirement on their own terms.  Notably, just 65 percent of workers retire in the traditional sense at age 65.  Of the remaining 35 percent, over one-third remain employed part-time, and those with a higher education (and divorced women) tend to continue working the longest.   As they sell off large homes and prized possessions, this cohort is also about simplifying their lifestyle in order to engage more in experiences such as travel, civic engagement and spending more time with family and friends.

Recently, AARP updated its annual “Livability for All” report, which surveyed residents age 50 and older in eleven different metro areas about features of their current home, a ranking of community features, and perceived gaps in between today’s conditions versus their preferences.  The report also focuses on the ‘eight domains of livability’ which the World Health Organization has not only identified as the key to the quality of life in retirement, but help cities design strategies for dealing with the rapid aging of their populations and a concurrent increase in urbanization.

What’s most striking about this survey is the split between Boomer wants and needs, with 80 percent or more preferring to age in place.  However, just over half of respondents said they would consider moving if they found a home that would maximize their ability to live independently, followed closely by living in a larger or smaller home.  Curiously, just 35 percent of those surveyed said being closer to family and lower living costs was an important factor in a move.

So, if you’re hoping to capture the imagination of retirees and convince them to sell their homes to start a new life, what should you be selling?  Besides the home itself, I would recommend also focusing on WHO’s eight domains of livability:

·       Outdoor Spaces and Buildings – Provide greenbelts, outdoor seating areas, defined sidewalks and easily accessible buildings.

·       Transportation – Help people get out of their cars by presenting other options including shuttle services, access to public transit, taxi services like Uber or Lyft or even car sharing. 

·       Housing – Accentuate the ability for buyers to age in place and provide options for housing at different income levels.

·       Social Participation – Since loneliness has been found to have an out-sized impact on health, combat social isolation with regular and accessible social activities.

·       Respect and Social Inclusion – Launch intergenerational programs so younger people can learn from the older, whether it’s mentoring, teaching or volunteering.

·       Work and Civic Engagement – Help residents remain engaged in the workforce if they so choose, even on a part-time basis.  Volunteering for Meals on Wheels, the local animal shelter or even in local politics can help retirees continue to use life-long talents and skills.

·       Communication and Information – Although today’s retirees are more tech-savvy than ever, don’t assume they all have Internet access or smart phones; information needs to be distributed in multiple ways.

·       Community and Health Services – Since at some point nearly everyone will require some type of community or health care assistance, not only is it important to have such services nearby, but that it’s also accessible and affordable.

The good news is that is does seem that today’s retirees are embracing the later stages of life with both curiosity and vigor.  Or perhaps they’re simply mindful of the quote, “Do not regret growing older. It is a privilege denied to many.”

Personal income, consumer spending and prices all rose in May while savings rate dipped slightly

Personal income increased $37.1 billion, or 0.2 percent, and disposable personal income (DPI) increased $33.9 billion, or 0.2 percent, in May.

Personal consumption expenditures (PCE) increased $53.5 billion, or 0.4 percent.

The personal saving rate was 5.3 percent, compared with 5.4 percent the previous month.

The May PCE price index increased 0.9 percent from May a year ago. The May PCE price index, excluding food and energy, increased 1.6 percent from May a year ago.

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Conference Board: Consumer confidence rebounds in June after May decline

Consumer confidence rebounded in June, after declining in May. Consumers were less negative about current business and labor market conditions, but only moderately more positive, suggesting no deterioration in economic conditions, but no strengthening either. Expectations regarding business and labor market conditions, as well as personal income prospects, improved moderately. Overall, consumers remain cautiously optimistic about economic growth in the short-term.

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Pending home sales dipped in May year-on-year for the first time in almost two years

After steadily increasing for three straight months, pending home sales let up in May and declined year-over-year for the first time in almost two years. All four major regions experienced a cutback in contract activity last month.

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April Case-Shiller Index rose 5.0 percent year-on-year and 1.0 percent from March

The S&P/Case-Shiller U.S. National Home Price Index reported a 5.0% annual gain in April, down from 5.1% the previous month. Before seasonal adjustment, the National Index posted a month-over-month gain of 1.0% in April.

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First quarter GDP growth revised up to 1.1 percent in third and final estimate

Real gross domestic product increased at an annual rate of 1.1 percent in the first quarter of 2016, according to the "third" estimate released by the Bureau of Economic Analysis.  This was revised up from 0.8 percent in the second estimate.

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Durable goods orders fell sharply in May, mostly due to lower defense aircraft demand

Orders for long-lasting factory goods fell more sharply than expected in May, amid a huge drop in defense aircraft orders. Excluding defense, orders fell 0.9 percent.

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Consumer sentiment dips in June, but no recession is anticipated

Consumers were a bit less optimistic in June due to rising concerns about prospects for the economy. While no recession is anticipated, consumers increasingly expect a slower pace of growth in the year ahead.

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Durable goods orders fell sharply in May, mostly due to lower defense aircraft demand

Orders for long-lasting factory goods fell more sharply than expected in May, amid a huge drop in defense aircraft orders. Defense aircraft orders plunged 34 percent, while orders that excluded transportation were down 0.3 percent. Excluding defense, orders fell 0.9 percent.

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Consumer sentiment dips in June, but no recession is anticipated

Consumers were a bit less optimistic in June due to rising concerns about prospects for the economy. While no recession is anticipated, consumers increasingly expect a slower pace of growth in the year ahead. Importantly, the persistent strength in personal finances will keep consumer spending at relatively high levels and support an uninterrupted economic expansion. Although the data are consistent with GDP growth falling slightly below 2.0% in 2016, real consumer spending can be expected to rise by 2.5% in 2016 and 2.7% in 2017.

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BuilderBytes' MetroIntelligence Economic Update for 6/24/16

Please click here to see the edition of BuilderBytes for 6/24/16 on the Web.

In this issue of the MetroIntelligence Economic Update, I covered the following indicators:

• May new home sales dipped 6.0 percent from April but still up 8.7 percent year-on-year
• Leading Economic Index declined in May as initial unemployment claims rose
• Mortgage loan applications rose 2.9 percent in latest survey as rates fall to lowest level since May 2013
• Initial unemployment claims fall 18,000 in latest report

Want to advertise in the newsletter and reach over 130,000 readers? Contact the editor at nslevin@penpubinc.com.

Initial unemployment claims fall 18,000 in latest report

In the week ending June 18, initial unemployment claims were 259,000, a decrease of 18,000 from the previous week's unrevised level of 277,000. The 4-week moving average was 267,000, a decrease of 2,250 from the previous week's unrevised average of 269,250.

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Mortgage loan applications rise 2.9 percent in latest survey as rates fall to lowest level since May 2013

The Market Composite Index increased 2.9 percent on a seasonally adjusted basis from one week earlier, with refinances rising 7 percent and purchase loans falling 2 percent. The average interest rate for 30-year fixed-rate mortgages decreased to its lowest level since May 2013.

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Leading Economic Index declined in May as initial unemployment claims rose

The US LEI declined in May, primarily due to a sharp increase in initial claims for unemployment insurance. While the LEI suggests the economy will continue growing at a moderate pace in the near term, volatility in financial markets and a moderating outlook in labor markets could pose downside risks to growth.

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