B.C. Manion

The housing market has its challenges, but Florida continues to enjoy a better situation than markets in many other parts of the country.

At least that was the message delivered by two experts at the Tampa Bay Builders Association 2019 Economic Forecast briefing on Jan. 23 at Tampa’s River Center at Julian B. Lane Park, in downtown Tampa.

Robert Dietz, chief economist of the National Association of Homebuilders, and Lesley Deutch, with John Burns Real Estate Consulting, shared their expertise on the outlook for the housing market, and discussed various factors that influence its performance.

Dietz focused on the national picture.

“Despite the fact that Florida is really kind of benefiting from strong population growth, the national market is slowing down,” Dietz said. “A lot of that has to do with higher interest rates, where we are in the economic cycle.”

The current growth cycle, which is 116 months old will exceed the record growth cycle of 120 months, which was achieved during the 1990s, Dietz said.

But, Dietz observed: “The thing that’s important to keep in mind, however, is Ben Bernanke, the former chair of the Federal Reserve, said ‘Economic growth cycles don’t die of old age. They’re murdered, and they’re murdered by the Federal Reserve.’

“Our forecast is for two (interest) rate hikes right now. Wall Street is saying zero for 2019,” Dietz said.

“The big macro risk is the labor market,” Dietz said. “The good news is that the unemployment rate is below 4 percent. We do think it’s going to rise later in 2020, when we hit that growth recession.”

Labor shortages result in wage growth, which generally is good for housing demand, he said.

However, he noted: “Keep in mind there’s two kinds of income growth in an economy. There’s income growth that’s generated by productivity growth. That’s fine.

“And then there’s wage growth that comes about as businesses are competing over an increasingly scarce labor pool. That’s inflation. That’s what the Fed is worried about. That’s why they’re trying to raise rates before that happens,” he said.

Dietz is projecting that the fixed-rate 30-year mortgage will be around 5.1 percent or 5.2 percent.

“That’s the good news. It’s not going to rise much higher than what we’ve already seen,” he said. Still, he added: “Given the current levels of pricing, a 5-percent mortgage interest rate is enough to stall the housing market. If you would have asked me five years ago where that point was, I would have, without hesitation, said 6 percent.”

While interest rates have an impact on demand, there are other considerations, too, including the ability to get a loan, Dietz said.

The increase in student loans and auto loans is crowding out the ability of younger households to get home loans, Dietz said.

There are 1.5 trillion student loans, which is up 136 percent since the Great Recession, he said.

In general, student loans can lead to degrees, which can mean a lifetime of higher income and the ability to buy a bigger house, he said.

“The problem is the 40 percent of four-year college students who go to college and drop out. No degree and $20,000 in student loans. That’s pure dead-weight loss,” Dietz said.

Auto loans are an issue, too.

“Car sales have done very well for the past four or five years. The problem is, seven-year car loans, no money down,” he said.

He also noted the increasing number of 25-year-olds to 34-year-olds who are living at home with their parents. Twenty years ago, that number stood at one in 10; now, it’s one in five.

Overall, however, the demographics are good.

“The demand for single-family housing is going to grow and grow and grow” because the peak age of millennials is about 28, and half of new homes are purchased by those between 35 and 55,” Dietz said.

Affordability is an issue
“The worst markets are the West Coast. In San Francisco and Los Angeles, fewer than 1 in 10 home sales are affordable for a typical family. For that reason, you are seeing population leaving California and going places like Idaho. Boise is now listed as unaffordable because of population demand,” he said.

The Tampa/St. Petersburg market is relatively affordable, Dietz said. It has been enjoying population growth, and in 2017, its population grew by 1.8 percent, compared to the national growth rate of 0.6 percent.

He’s projecting single-family construction in the Tampa region “to be better than the nation as a whole, but slower than what we’ve seen in the last few years.”

He also expects the size of single-family homes to continue to decline, and points to the 24 percent growth in townhome construction as an indicator of that trend.

Dietz also predicts that multifamily construction will be slightly negative because of tighter financing, and that remodeling will soften, too.

Deutch took a closer look at Florida, and the Tampa market area.

“Florida, as a whole, is much stronger than the rest of the country,” Deutch said.

“Tampa is a very, very solid — fundamentally solid — housing market,” she said.

“From a national perspective, Tampa is very, very affordable. From a local perspective, it’s getting a little bit more unaffordable. All of Tampa and all of the Florida markets are benefitting from (their) relative affordability,” she said.

However, she noted: “We’re not immune to what’s happening in the rest of the country.”

The biggest impediment to increased residential construction is affordability, she said.

“Home prices are way above the peak — 24 percent higher than the peak of new home prices and resale prices are getting up there, too.”

“It’s not just only builders increasing their home prices. The construction prices, labor costs, land costs, have all gone up. And, all of this is really constraining a faster pace of growth for Tampa’s market. This is what’s causing the slower home sales.”

Despite the challenges, companies can manage through them, she said.

The key is understanding the consumer, Deutch said.

Her company did a consumer survey of 25,000 new home shoppers across the country, dividing them into nine consumer categories: Young singles, single parents, mature singles, young couples, empty-nesters, active adults, young families, families plus and mature families.

“So, if you’re a home builder and you sold a home to an empty-nester, they’re going to be very happy to meet the warranty manager at 10 a.m., in the morning. They don’t really have a whole lot of things to do.

“But if you sold that home to a single parent, do you think they’re going to be sitting at home waiting for the warranty guy to come in at 10 o’clock in the morning?

“All of these people are going to act completely differently,” she said.

“You really have to understand who your buyer is. There is going to be more competition,” Deutch said. “They’re out there. There is demand, but how are you going to get them?”

Housing trends
John Burns Real Estate Consulting does monthly surveys with 350 builders across the country, asking the same questions each month, to get a pulse on the market.

Here are some questions and results:

“Where are home prices going? Month-to-month.”
In 2017: 31 percent said home prices are increasing; 65 percent said they are flat; 4 percent said they are declining.
In 2018: 5 percent said they are increasing; 72 percent said they are flat; 23 percent said they’re declining.

Where do you see single-family home sales over the next six months?
In 2017: 66 percent said they’re going to be good; 33 percent said they’re going to be fair; none said they were poor
In 2018: 24 percent said they’re good; 71 percent said fair; 5 percent said poor.

Published February 06, 2019