“Why is it so hard to find a starter home in today’s real estate market?” asked Elliot Eisenberg, President and Chief Economist at Graphsandlaughs.net., during an economic summit hosted by the Fredericksburg Area Association of Realtors and the Fredericksburg Area Builders Association.
According to an article in fredericksburg.com, he used “charts, graphs and plenty of humor” to illustrate the reasons as to why he perceives the housing market to be ‘a complete wreck.’ “Every sector in the U.S. has cleaned itself up from the recession with one exception: housing. It’s still a complete wreck,” he told the audience. Eisenberg also pointed out that we’ve under-built because of a weak economy.
Speaking of single-family homes, he indicated that it is especially true for single-family homes, particularly those going for $200,000 or less. “If you don’t build single-family, you can’t sell single family,” he said. Eisenberg added that the builders do not build these units as they cannot make money out of it. Labor cost is one reason he cited as an impediment to building single-family homes. “Unemployment is so low that there is a shortage of workers. To attract them, builders have to pay more,” he pointed out.
Quoting data from the National Association of Home Builders/Wells Fargo Housing Market Index, he stated that another factor affecting the builders’ bottom line is that the average cost of regulation in the price of a new home went from $65,224 in 2011 to $84,671 in 2016. To combat the issue, Eisenberg indicated that there is a need to urge officials to change the regulations.
New home sales did improve by 2.7 percent in November last year and are forecasted to improve slightly in 2019, he said. Speaking of inventory, Eisenberg added that the rate at which it is going up is slight and can be hardly seen.
The prices of new homes being considerably higher than they were at the peak before the recession is responsible for the slow growth in prices, he indicated. Most new housed today, he said, are priced under $200,000 are an “insignificant percentage” of new home sales. Most are in the $200,000 to $299,999 and $500,000 to $749,999 ranges. Meanwhile, the average square footage in new construction is shrinking going from a 13-year high of 2,736 square feet in the first quarter of 2015 to 2,495 square feet in the third quarter of 2018, per U.S. Bureau of the Census and Department of Housing and Urban Development figures. On the other hand, existing home sales have plateaued, and the demand for renovations, repairs, and alterations is declining.
Addressing the slowdown in the economy, through various indicators, he stated that the U.S. economy, which experienced 2.9 percent growth last year will slow to 2.4 or 2.5 percent this year and then 2.1 percent next year. “Last year was the best year. I hope you enjoyed it. This year won’t be as good but enjoy it. Going from the first floor to the second floor doesn’t mean it’s bad. We’re not entering a recession, we’re reverting to a long-term trend,” he added.
Eisenberg, however, is optimistic about home ownership in the coming years as millennials whom he described as “the big, bulging group,” begin buying houses “with a vengeance.”