Oklahoma Home Builder News

The article below was written by Dr. Robert Dietz, National Home Builders Association Chief Economist. 

With the election in the rearview mirror, and personnel and policy decisions coming into focus for the incoming Trump administration, markets absorbed inflation data and elevated future risks. Inflation, which was a critical issue during the election, ticked higher in October as the Consumer Price Index (CPI) posted a 2.6% year-over-year growth rate. Overall, prices since the start of 2020 are up 20.2% — the largest spate of inflation in almost five decades. Due to higher construction costs and other supply-side factors, housing sector inflation continues to be a driving factor for the CPI. Shelter inflation increased at a 4.9% year-over-year rate in October and was responsible for 65% of total inflation over the last 12 months.
 
Due to lingering inflation pressure and possible future policy risks for prices, long-term interest rates remain elevated even as the Fed reduces short-term rates. The 10-year Treasury is near 4.4% — the highest level since the start of July. Fiscal policymakers need to show they will exert discipline for the federal deficit if risk increases. The 30-year fixed-rate mortgage is above 6.8% — also the highest rate since July due to similar concerns. NAHB’s forecast is for future declines in these interest rates over the next two years.
 
Ongoing elevated mortgage rates, combined with higher home prices, leave housing affordability in crisis-level conditions. The NAHB/Wells Fargo Cost of Housing Index (CHI) indicates that for the typical family, 38% of their income is required to buy a median-priced new or existing home. Low-income families would require three-quarters of their income. These affordability conditions are holding back home sales volume, although existing home sales improved in October. For the month, resales increased 3.4% to a 3.96 million annual rate — up 2.9% from a year ago and the first year-over-year gain for transaction volume in three years. Total inventory remains lean at a 4.2-month supply.
 
The November reading of builder sentiment, via the NAHB/Wells Fargo Housing Market Index (HMI), noted a post-election gain despite ongoing challenges for affordability and home construction costs. The HMI increased by three points to a still soft reading of 46. However, the measure of future sales expectations increased by seven points to a positive reading of 64, reflecting builders’ optimism for the economy and sales conditions, while mindful of current policy risks. For example, single-family construction starts were down 6.9% to a 970,000 seasonally adjusted annual rate in October, although on a year-to-date basis, single-family home building is up more than 9%. Multifamily construction is down 29% on a year-to-date basis, as that market continues to face localized oversupply and tight financing conditions. NAHB is forecasting a small gain for single-family construction in 2025, while apartment development will level off later in the year. 

Every year it is a privilege of the Oklahoma Home Builders Aassociation to hold the annual OK Building Summit & Expo. The initial idea behind the Summit was to help those builders and associates who cannot attend the International Builders Show an alternative – a mini-IBS if you will. It provides great education with an opportunity to meet and greet local vendors. It has grown where those that attend can obtain all the hours they need to complete their annual continuing education requirements for their Certified Professional Builder credentials.

This year we are stretching to do even more. With the slate of speakers, we have lined up, there is education, not only for the builder, but their superintendents, their sales staff, and even their framers! While not everyone needs CEU credits, everyone can utilize the education they will receive. Then add to that the networking environment and the great vendors and sponsors – it is a Summit you do not want to miss!

Let’s look at a few examples. Not only do we have Scott Sedam back with his amazing knowledge of processes, but we also are bringing in Charlie Scott to help sales staff and builders know what it takes to make an ultimate sales team. Realtors will gain invaluable knowledge in selling new home construction.

We also have Dr. Chris Ramseyer, a structural engineer, along with Mike Hancock, another engineer, sharing their insights and knowledge in proper techniques from framing to water barrier installations. These are classes your field guys will really appreciate.

Last one for everyone, even though there is much, much more. Ted Jones, recently retired chief economist for Stewart Title, brings his unique presentation methods to understanding the economic picture and what he expects to happen in the near future.

So, I call this one a Summit for Everyone. Take time to come and join us! You can sign up here to attend.

The article below was written by Dr. Robert Dietz, National Home Builders Association Chief Economist. 

With the Federal Reserve expected to cut short-term interest rates at the conclusion of its upcoming September monetary policy meeting, long-term interest rates have already priced in some of the impact of future easing. The average 30-year fixed-rate mortgage last week was 6.35% — the lowest since May 2023. As interest rates gradually and unevenly move lower in the quarters ahead, housing demand will improve in most markets and opportunities will expand for prospective home buyers currently waiting on the sidelines.
 
Home sales have picked up as long-term interest rates trend lower. Total existing home sales increased 1.3% to an annual rate of 3.95 million in July. This was the first monthly gain in four months, although the pace of sales is still down 2.5% from a year ago. Inventory remains lean at just a 4-month supply, although inventory levels are rising (up 19.1% on a year-over-year basis).
 
New home sales surprisingly increased 10.6% in July to an annual rate of 739,000, elevating the pace of sales 5.6% from a year ago. However, this gain was at odds with recent industry surveys, suggesting a downward revision is likely for the July data. 
 
New home inventory stands at 462,000 homes, down 1.1% from June but at a seemingly elevated 7.5-month supply. However, the combined inventory of both new and existing homes stands at a low 4.5-month supply. As this metric rises, the pace of home price gains will continue to slow. The Case Shiller Home Price Index has been trending downward for several months, declining from an annual rate of 9.76% in August 2023 to 1.89% in June 2024.
 
New research from NAHB examined several of the challenges home builders faced in recent years. For example, analysis of 2023 data found that it takes an average of 8.6 months to build a single-family home, up from 7.2 in 2015. Additional analysis explains why cost is a key barrier to adding entry-level housing. The data show that the median cost per square foot rises significantly as homes get smaller: from $132 per square foot for a home over 5,000 square feet, to $200 per square foot for a home under 1,200 square feet. 

And new labor market analysis finds that the share of white-collar workers in the construction industry is on the rise, while the share of trades workers has fallen from 71% in 2005 to 61% in 2022. Some view this as an indication of technology adoption. However, lackluster productivity gains for the sector during this period suggest the rising presence of white-collar workers is a result of the industry’s ever-expanding regulatory environment.

The article below was written by Dr. Robert Dietz, National Home Builders Association Chief Economist. 

The residential construction industry is in a holding pattern until the Federal Reserve moves forward with interest rate reductions. However, this monetary policy move now appears to be firmly in view, as economic data continue to soften. Inflation readings are moderating after an unexpected uptick during the first half of the year. And the bond market is investing as if the first rate reduction will arrive at the Fed’s September meeting, with a series of further reductions through the end of 2025.
 
With macro data slowing but reasonably solid, inflation expectations anchored, and short-term rates likely to fall, the 10-year Treasury rate has fallen back to around 3.8%. This is down almost 100 basis points from late April. Mortgage rates have moved lower as well, averaging approximately 6.5% last week, per Freddie Mac — the lowest reading in a year. Consumer inflation is also slowing, with a 2.9% year-over-year estimate for the Consumer Price Index in July. However, shelter inflation continues to be the last leg of the inflation fights, with housing costs up 5.1% year-over-year. Shelter inflation has been responsible for 70% of the overall rise in consumer costs over the last 12 months. And like other sectors, these costs are up because of underlying business cost growth. For example, residential construction material costs rose 2% year over year in July — the sixth straight month with that rate of growth. Meanwhile, residential construction wages were up 9% year over year.
 
Despite the outlook for lower interest rates, current housing data have been weak because of the lagging effects of prior elevated interest rates and ongoing price and cost growth. Single-family housing starts decreased 14.1% in July to an 851,000 seasonally adjusted annual rate. Nonetheless, on a year-to-date basis, single-family starts are up 11.4% for the first half of 2024. The July drop for single-family home building mirrors recent softening for the NAHB/Wells Fargo Housing Market Index (HMI), which dipped another two points in August to a weak reading of 39. The HMI should improve as the Fed provides more details about the eventual reduction of short-term interest rates. 
 
In the meantime, elevated short-term interest rates are holding back the acquisition, development and construction (AD&C) loan market for private builders. Average effective interest rates increased for three of the four categories of NAHB's second quarter AD&C financing survey. For the quarter, the average effective interest rate increased from 11.09% to 12.22% on loans for land acquisition, from 13.35% to 14.32% on loans for speculative single-family construction, and from 12.95% to 13.08% on loans for pre-sold single-family construction. 
 
Multifamily construction of apartment buildings and condos increased 14.5% to an annualized 387,000 pace in July. Because the monthly multifamily data are volatile, the year-to-date data are more instructive. Multifamily 5-plus unit construction is down 35% thus far in 2024 due to tight financing and an ongoing rise of completed apartments. This weakness is consistent with NAHB's Multifamily Production Index, which had a second quarter reading of just 44, marking a year-over-year decrease of 12 points. Multifamily developers are less optimistic than they were at this time last year, given high interest rates and tight financing conditions. 

The OkHBA held its Spring Board of Directors meeting last week. Among the many items of business, the directors heard a report from the Oklahoma Housing Finance Authority about the Housing Stability Fund recently approved by the Oklahoma Legislature. The idea behind the fund is to not only increase housing, but especially in rural communities in Oklahoma.

One of the ways to entice builders to build in rural communities is zero percent (0%) construction loans for 24 months. To qualify a builder must supply 10% and build a minimum of 5 homes with a maximum of 25 homes. They can be on scattered sites – meaning a builder could build in surrounding rural communities. The construction loan must be repaid before submitting another application. 

While we would like to have seen some kind of partnership with those rural communities, such as in-fill lots at no cost or greatly reduced cost, there are some aspects of the program we like. The size of the homes are those we think typically are in the attainable range – 1,000 to 2,000 square feet.

There is also down payment assistance to the buyers via OHFA. They can qualify for a grant of 5% down payment assistance, but they must maintain their residency in the home for 3 years.

There is more to the program.  For more information, visit www.ohfa.org/housingstability.

Mike Means
OK Home Builders Assn

The article below is from the National Association of Home Builder's "Eye on the Economy".

Despite elevated interest rates, home builder sentiment and construction starts are showing the potential for housing sector growth in the coming months. In fact, the reason for recent increases for the 10-year Treasury rate, which is now hovering near 4.3%, is ongoing solid economic conditions. For example, in February, wages were 4.3% higher than a year ago and 275,000 jobs were created. The unemployment rate remains low at 3.9%, which is helping to support for-rent and for-sale housing growth.
 
Indeed, the moderately strong economic data are keeping upward pressure on what had been a declining trend for inflation. In February, the Consumer Price Index (CPI), the broadest measure of inflation, was up 3.2% from a year ago. While inflation data made progress in late 2022 and early 2023, the CPI has been in the 3% range since May 2023. The reason for the lingering and unfinished inflation challenge continues to be housing inflation, which is due to a lack of housing supply. The shelter inflation component of overall inflation was up 5.7% from a year ago. This is lower than at the start of the year, but for shelter to fall back to the inflation reported in the rest of the economy, additional home building will be required. 
 
Home construction continues to be challenged by supply-side issues. For example, gypsum pricing was up 3% in February, and concrete prices are up more than 7% from a year ago. Meanwhile, a shortage of skilled labor continues, with 413,000 open construction sector jobs. There were only 293,000 open jobs a year ago, a sign of ongoing growth for construction workers.
 
Despite these challenges, with the Fed expected to cut the short-term federal funds rate later this year, builders are anticipating more gains for building. The NAHB/Wells Fargo Housing Market Index (HMI) increased to a level of 51 in March. This was the first time HMI was above the break-even level of 50 since last July. Only 24% of builders reported using price cuts in March, which was the lowest share since last summer. 
 
Consistent with improving builder sentiment, housing starts expanded in February. Single-family starts increased 11.6% to a 1.13 million seasonally adjusted annual rate, up 35.2% compared to a year ago. The three-month moving average (a useful gauge, given the recent volatility) is up to over 1 million starts. The multifamily sector increased 8.3% to an annualized 392,000 pace for 2+ unit construction in February. However, multifamily construction is down 34.8% on a year-over-year basis, with additional declines expected ahead as housing supply for apartments increases later this year.

Dr. Robert Dietz
NAHB Chief Economist
@dietz_econ