As Home Prices Rise Owners Also Set to Spend More on ImprovementsApril 20th, 2021 by Drew Vass
After the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) showed a slight dip in builder confidence in March, data from the U.S. Census Bureau shows a rise in building permits issued for the same month, along with a sharp year-over-year increase.
In March, officials for NAHB pointed to material costs and rising interest rates as culprits for a two-point drop in the association’s HMI. A month later, the same association reported that housing production rebounded at “the fastest pace for combined single-family and multifamily construction since June 2006.” Overall housing starts increased 19.4% to a seasonally adjusted annual rate of 1.74 million units, NAHB officials reported. According to U.S. Census Bureau data, authorization for single-family permits in March rose to a seasonally adjusted annual rate of 1.2 million—4.6% above the revised February rate of 1.15 million. Starts among single-family homes registered at a rate of 1.24 million—15.3% above the revised February figure.
“Builder confidence remains strong, pointing to gains for single-family construction in 2021,” said NAHB chairperson Chuck Fowke, adding, “However, rising costs for most kinds of building materials continue to impede positive additional momentum in the market.”
Though the seasonally adjusted annual rate for completions of single-family projects rose 5.3%, to 1.1 million in March, experts agree that number is a far cry from what is needed.
“Demand remains solid due to low mortgage interest rates and a thin level of inventory in the resale market, which is spurring the need for additional supply,” said NAHB chief economist Robert Dietz. “The test for the industry this year will be balancing growth and higher construction costs, given ongoing housing affordability challenges.”
As rising costs for materials add to the median price for new homes, home buyers have so far proven they’re willing to cope with those differences. According to experts at national real estate brokerage Redfin, the national median price for home sales hit a record high in March, at $353,000, registering 17% higher than the same month a year earlier. At the same time, the number of homes for sale fell to record lows, Redfin’s data shows, with a year-over-year drop of 29%. The typical home sold in just 25 days, data shows, with 42% selling at above their list prices.
With rising expenditures among home sales, the market for repairs and improvements also continues to gain momentum, said experts at Harvard’s Joint Center for Housing Studies.
“With a financial boost from recent federal stimulus payments and strong house price appreciation, homeowners are continuing to invest in the upkeep and improvement of their homes,” says Chris Herbert, the center’s managing director. “This lift in incomes and ongoing strength of the housing market are providing homeowners incentives to make even greater investments in their homes this year.”
According to the center’s Leading Indicator of Remodeling Activity (LIRA), which provides a short-term outlook of national home improvement and repair spending, growth in improvement and repair expenditures is expected to continue through the remainder of 2021 and into 2022.
Harvard’s indicator is designed to project the annual rate of change in spending for the current and subsequent four quarters, helping to identify future turning points in the market for home improvements. Current data projects a pace of mid-single digit gains in spending in 2021, with an additional 4.8% growth by the first quarter of 2022.
“Although the recent surge in DIY activity is slackening as the economy continues to open up, homeowners are undertaking larger discretionary renovations that had been deferred during the pandemic,” says Abbe Will, associate project director in the Remodeling Futures Program. “A shift to more professional projects should boost annual homeowner remodeling expenditures to $370 billion by early next year.”