The housing boom could be losing steam. What’s it mean for you?
The economic recovery from the pandemic has produced a red-hot global housing market, sending prices soaring and generating angst for would-be first-time buyers.
But signs are growing that demand could be tapering off as expenses rise.
What’s happening: High construction costs and supply shortages are weighing on confidence among builders, which fell in August to a 13-month low, the National Association of Home Builders said this week.
Home Depot earnings also raised eyebrows. Same-store sales growth rose just 3.4% in the United States during the second quarter, after jumping nearly 30% in the first three months of the year.
There were fewer people were shopping in Home Depot stores, too. The company reported 481.7 million customer transactions, down nearly 6% from the same period a year ago. Shares shed more than 4% Tuesday.
There’s more: US retail sales for July, which arrived Tuesday, indicated that spending on home improvement projects had pulled back.
Lumber prices have dropped significantly after hitting a record high earlier this year. But the cost of materials remains elevated, causing some people to think twice about housing investments.
“Buyer traffic has fallen to its lowest reading since July 2020 as some prospective buyers are experiencing sticker shock due to higher construction costs,” NAHB Chairman Chuck Fowke said.
The NAHB predicts that housing supply bottlenecks could ease in the coming months, and “the market should return to more normal conditions.”
But amid an unpredictable pandemic, only time will tell if high prices will start to moderate, bringing skittish buyers back into the fold.
Watch this space: Normality definitely isn’t here yet. The United Kingdom’s Office for National Statistics said Wednesday that housing prices in the country rose more than 13% in the year to June, the highest annual growth rate since November 2004.
The average UK house price reached a record high of £266,000 ($365,780), which is £31,000 ($42,630) higher than in June 2020 last year.
In the United States, the National Association of Realtors said last week that the median sales price of single-family existing homes rose almost 23% to $357,900 during the second quarter, an increase of $66,800 from 2020.
Big picture: The state of the housing market has major consequences not just for consumers looking to sell their homes or make purchases, but also for the broader economy. It’s a major point of contention for central bankers, who are debating when to pull back pandemic-era support.
The Federal Reserve, which is preparing for its big conference in Jackson Hole next week, has been accused of contributing to the housing frenzy by continuing to purchase $40 billion of mortgage bonds each month.
Companies are hoarding cash amid Delta fears
Big companies around the world are adding to massive piles of cash, a sign that corporations are increasingly nervous about how the highly contagious Delta variant of Covid-19 could damage the global economy.
The latest: The world’s largest nonfinancial companies had a record $6.85 trillion in cash on their balance sheets as of the end of the second quarter, according to data from S&P Global Ratings.
The second-quarter totals are up slightly from the end of 2020, my CNN Business colleague Paul R. La Monica reports. Gareth Williams, global head of corporate research for S&P Global Ratings, estimates that the cash level could hit $7.1 trillion by year’s end.
Tech giants are a major part of the story. Apple, Microsoft and Google owner Alphabet have a combined $460 billion in cash on their balance sheets. Amazon has nearly $90 billion. Facebook has more than $64 billion.
But tech firms aren’t the only ones adding to cash stocks. Warren Buffett’s Berkshire Hathaway had more than $144 billion on its balance sheet at the end of June as the company struggles to find investment opportunities.
Businesses have also been taking advantage of low interest rates to borrow more money, which has helped boost both cash — and debt levels — for blue-chip firms.
“Companies are spending on buybacks, dividends and mergers. The capital markets are wide open,” said Christopher Harvey, head of equity strategy at Wells Fargo. “The cost of funding is incredibly cheap so companies are issuing debt and cash is still accumulating.”
Tesla’s Autopilot comes under the microscope
Regulators have serious questions about Tesla’s Autopilot feature, and their concerns are weighing on the company’s stock.
Earlier this week, the US National Highway Transportation Safety Administration said it was investigating at least 11 accidents involving Tesla cars using Autopilot or other self-driving features that crashed into emergency vehicles when coming upon the scene of an earlier incident.
The agency said seven of these accidents resulted in 17 injuries and one death, and that its investigation will allow it to “better understand the causes of certain Tesla crashes,” including “the technologies and methods used to monitor, assist, and enforce the driver’s engagement with driving while Autopilot is in use.”
US lawmakers are also paying attention. On Wednesday, two senators asked the Federal Trade Commission to probe Tesla, saying its claims about Autopilot and self-driving systems misled consumers and endangered the public, according to Reuters.
“Tesla and [CEO Elon Musk’s] repeated overstatements of their vehicle’s capabilities … put Tesla drivers — and all of the traveling public — at risk of serious injury or death,” Senate Democrats Richard Blumenthal and Edward Markey said in a letter to FTC Chair Lina Khan.
Investor insight: Tesla shares closed 3% lower Tuesday on news of the investigation. They’re up 1% in premarket trading Wednesday. But scrutiny from regulators of a key Tesla feature will remain worth watching as the company ramps up deliveries.
Real estate, like nearly every aspect of our lives, took plenty of blows during the pandemic.
People fled big cities and, freed up by working remotely, clamored for homes in the suburbs. Locked-down families craved more space, landlords fretted over collecting rent from tenants struggling with unemployment, and commercial storefronts and office space sat empty.
Now as we look ahead, real estate is considered a bellwether for the future of an economic recovery, population migrations, consumer demand, and more.
Roofstock selected 10 emerging real estate trends in 2021, using data from the Emerging Trends in Real Estate 2021 report compiled by PwC and the Urban Land Institute. The trends cover topics such as investment prospects, notable real estate markets, population migration, and the effects of COVID-19 on residential and commercial real estate. The trends in this report are based on interviews and surveys of more than 1,600 people who work in real estate advisory, investing, lending, or real estate development.
Trends in real estate are intertwined. Construction costs are high as commodities are expensive and supply chains are disrupted. Consumers' shopping habits have altered demand for brick-and-mortar shops, warehouse space, and online goods distribution centers. Rents are soaring, and houses in some places are sold within days, well over the asking prices. Keep reading to see how these elements are influencing emerging trends in real estate this year.
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As jobs come back across the U.S., people who were renting may find themselves able to take out home loans, adding more buyers to an already competitive market. Some experts have predicted the housing shortage will continue for years before self-correcting.
While building slowed during the pandemic, construction costs—both labor and materials—soared. Many of the price rises were a result of worker shortages and disruptions in supply chains for commodities and raw materials. The price of lumber, as one example, rose by more than a third. Costs continue to be high, compounded by a shortage of skilled labor.
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A 2020 survey from Ernst & Young Global Limited found 33% of consumers anticipated shifting more to online shopping; in 2021, nearly 40% said they are still shopping at physical stores less than before the pandemic started. Consumers are showing less tolerance for service disruptions linked to the coronavirus. Just one in five of those surveyed said they are forgiving retailers for such disruption.
COVID-19 has also elevated the discussion around how critical public open spaces are and the disproportionate access different demographics have to them. Roughly 100 million Americans do not live within 10 minutes of a park—a statistic that came into sharp focus in 2020. Restaurants setting up outside seating, along with surges in discussions around and demand for more open spaces, are driving infrastructure projects that will answer that need from coast to coast.
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City residents started heading for the suburbs to work remotely when the pandemic hit, and they are continuing to do so. Many in this demographic are largely moving to suburbs close to cities—such as New Yorkers moving to New Jersey or Connecticut—leaving the option to return to the office part time. A suburb close to the city also offers access to urban amenities. Experts say demand will continue to grow for single-family suburban houses.
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Government stimulus for coronavirus-related economic recovery is helping boost the real estate sector and real estate investment trusts. Funding helps tenants stay current with rent, allowing landlords to pay their mortgages, property taxes, and other expenses. Other government funding has gone directly to landlords and to small businesses, also benefiting real estate investments.
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With housing prices rising, affordability has become a worsening crisis. Across the country, rents have gone up more than 7% in 2021, and they are expected to continue to rise. By definition, affordable housing means the property costs 30% or less of a household’s income. It’s estimated that nationwide, there is a shortage of some 6.8 million rental units for tenants with extremely low incomes.
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In Raleigh, one of the hottest real estate markets in the nation, houses listed for sale are on the market an average for a mere four days as of July 2021. Demand for housing is fueled in the area in part because a high number of buyers have good credit scores and are prepared with healthy down payments. In Austin, median home prices have been hitting record highs month after month. Housing prices are up some 42% from where they were a year ago, according to local realtors there.
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Industrial and distribution properties are strong commercial real estate investments since e-commerce grew so dramatically amid the pandemic. With more e-commerce and less business at traditional brick-and-mortar stores, warehouse space is needed for goods. According to one estimate, 330 million square feet of warehouse space will be needed to house online orders by 2025. Additionally, companies doing sales online need distribution centers as they seek to improve their delivery systems.
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Along with fulfillment and warehouse properties being in demand, the single-family rental subsector is attracting investor interest. Having spent so much time at home during the pandemic, families are moving and seeking detached rentals with more space. Of the nation’s 46 million rental units, about a third are single-family. The build-to-rent market is growing as well, and about 12% of new construction of single-family homes this year has been in the area of rentals.
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Vacation homes have become a popular investment as Americans are traveling again but are opting for more privacy and distancing than traditional hotels and motels provide. This summer, over the Independence Day holiday weekend, reservations for short-term vacation rentals were nearly 50% higher than they were in the pre-pandemic summer of 2019. For the rest of the 2021 summer, the outlook for such reservations is strong, up 80% over 2019 levels. Rates are higher overall: another plus for the vacation-home investor.
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Housing starts are being held down in large part by the high cost of building materials and a labor shortage. The prices for steel, lumber, concrete, and other materials are high. Also, builders are seeing extensive delays in the delivery of goods like heating units and windows. Lumber prices could stay high due to wildfires this summer in the West, experts say.
This story originally appeared on RoofStock and was produced and distributed in partnership with Stacker Studio.