October 14, 2024

Welcome to another episode of TrendsTalk. Today, I want to talk to you about residential construction and really just the overall housing market in the U.S., what we’re seeing a few trends develop, especially since we’ve gotten that first initial rate cut by the Federal Reserve.

Quick recap first on the ITR outlook for the Single-Unit residential construction starts. Through August of 2024, we’ve seen a total of 1.013 million starts, so that’s over the past 12 months. That’s up 13.1% from year-ago levels, just recently turned over from phase B accelerating growth to phase C slowing growth, and we expect between now and the early part of 2025 for that 12-month moving total, the 12 MMT, to decline about 5%. But from then from early 2025 to give way to rise, that will persist through the rest of 2025 and through at least the end of 2026. The decline here in the near term really being driven by still elevated interest rates and some of the effect we actually saw on Hurricane Beryl that came through and impacted the Gulf Coast region.

Now, let’s talk about that first rate cut from the Federal Reserve. We got that 50 basis point rate cut. The average 30-year fixed rate mortgages, they were down already from the October 2023 high. The high was 7.79%. It had already come down to about 6.2% in September prior to the rate cut, and since the rate cut, we’ve seen a little further decline to about 6.9 %. So mortgages are likely to continue to undergo decline, especially as it’s very likely we’re going to continue to see a few additional rate cuts by the Federal Reserve, and mortgage rates will certainly respond to that.

Now, this will help spur on some housing starts in ’25 through ’26. And with that initial rate cut, we’ve seen a little uptrend in the refinancing. So I’m looking at the Fannie Mae Raleigh index. This is a weekly index put out obviously by Fannie Mae. It’s sourcing data from their underwriting system tracking the volume of mortgage refinancing applications. So really measure how much refinancing activity is going on at a given time. So through the week of October 4th, they put it out in weekly chunks, we’ve seen a year-over-year change of an increase of 131%. Now, looking at the The month-to-month change, so looking at the first week of September, which would be prior to the rate cuts compared to that first week of October, is a 43.4% increase. Certainly, an increase in activity of refinancing is folks who are likely in high 7s, low 8s mortgage rates are looking to reduce that cost.

I would anticipate and suspect there’s many others that are waiting a little longer for further reduction in rate cuts. I’m one of them, had to bite the bullet recently, I have five children, buy a little bigger of a house, but I’m waiting for a little bit more of a tick down, and I anticipate others have a very similar strategy.

Now, affordability constraints, they’re going to remain a challenge for home buyers. Regional and local zoning laws and elevated material costs, those are going to present some downside pressure on housing starts with that affordability constraint on the would-be home buyers. I want to just look at a few other trends in the housing market that are worth noting. So, starting with median square foot of floor area for Single-Family Housing Units, this is put out by the Census Bureau, and this shows that the square footage in single-family units has declined to 2,154 feet. This is the lowest point in 14 years. Going back 14 years to 2010, at the same time, the average was 2,163 feet. So, as affordability constraints remain, we’re looking for ways to work through that, work around those constraints.

Looking at median listing price per square feet in the United States, this is data that’s put out by Realtor.com. We see a near-term decline from a recent all-time high in June of this year. That all-time high was $233 per square foot, but being the median price. It is ticked down through September to $227. So a slight, very mild decline, still very elevated. The pre-pandemic average through December of 2019 was $149. So while we’re getting a little easy, and as long as prices, that price per square foot, which with labor costs and material costs helping keep it elevated, I would anticipate smaller homes to continue to be built as a way to offset the affordability constraints.

If you’re in the housing market, if that’s where your business operates, be prepared for those for that demand and the rise and starts to come back in the first half of 2025 and persist through at least the end of 2026. But understand your all constructions regional. Understand what’s going on, how that What are the differences between the national trends and the regions that your business serves? If you’re in multiple regions, you could see just varying trends. Do the due diligence there. Here at ITR, we’re always happy to help, but I’m going to leave it there. Again, I’m Michael Feuz. Well, I enjoyed being on TrendsTalk with you again. Look forward to joining you again in the future.