US Census Bureau construction permit data

My post on the bull run of Texas housing construction permits prompted a dive into U.S. Census Bureau permit data from the past quarter century.

OVERALL CONSTRUCTION PERMIT TRENDS

1. The housing crisis hangover has been a very long one as we just surpassed the annual construction permit volume from 1995 this past year.
2. If not for the rise of multifamily permits, we'd still be in a hole. Unit permits for 5+ builds accounted for over a third of all permits for the past eight years, up from around a fifth pre-crisis.

SHARE OF PERMITS BY REGION

Three U.S. Census Bureau regions have seen the most change in share of housing construction permits over the past quarter century:

1. East North Central (Illinois, Indiana, Michigan, Ohio, Wisconsin) has been nearly halved;
2. West South Central (Arkansas, Louisiana, Oklahoma, Texas) has powered ahead; and
3. Mid Atlantic (New Jersey, New York, Pennsylvania) has gained materially.

TOTAL PERMITS BY TOP STATES

The top states' share of permits has steadily increased since 1995, rising from under a quarter to over a third of total construction permits. Texas alone accounted for 15% of permits in 2019.

Does Boston's bad weather drive out-migration?

A peek into the other side of the trends in population migration... Boston

1. Even though Massachusetts is the fastest growing Northeastern state, it's growth over the past decade has lagged the national average by 150 bps
2. Boston would have lost population if not for international migration

Luc Schuster of The Boston Foundation: "We are losing some residents to other parts of the country with strong economies and better weather - which is one of the factors, certainly - and cheaper housing."

The Missing Middle...

National Association of Home Builders about the Missing Middle has a chart that shows a stunning drop in 2-4 unit multifamily permits in the late 2000's. It bears mention that all housing permits plummeted during that period. Fortunately a relative representation of the same data set does indeed show a sustained reduction in share of 2-4 unit permits over the period.

Unfortunately, we lack a complete picture of Accessory Dwelling Unit impact to this Missing Middle housing stock since the U.S. Census Bureau only tracks ADUs that are new structures. Given that Freddie Mac estimates a total 1.4mm ADUs and the general trend towards promoting this configuration, missing middle seems to be an uncannily apt description of the situation.

More signs of the "K" - Manhattan edition

Curbed: "It Looks Like the Rich Aren’t Abandoning New York After All" ...meanwhile, the jury's still out on the lower 60%

Why does El Camino Real in the Peninsula look like it's stuck in the 1970s?

"According to UrbanFootprint’s analysis of El Camino Real, this lone corridor (between Daly City and San Jose) could theoretically accommodate more than 300,000 new units if the road was upzoned to allow residential development and its parking lots and big-box stores became low-rise apartment complexes."

California's aggregate building permits between 2010 and 2019 fell nearly 600k short of Texas' total despite having a population over a third higher.

Housing supply continue to drop

 Redfin: New listings fell 3%, the first annual decline since July even as pending sales were up 35%

Housing permits booming in Texas

While the aggregate US single-family housing construction permits is struggling to get back to the 100 (Jan ‘20 level), the Texas component is nearing 180. And remember that Texas has an outsized share of permits, accounting for roughly 15% total.

NYT: They Can’t Leave the Bay Area Fast Enough

"But the migration from the Bay Area appears real. Residential rents in San Francisco are down 27% from a year ago, and the office vacancy rate has spiked to 16.7%, a number not seen in a decade."

Manhattan by comparison saw rents drop 17% from a year ago and and has a 13% office vacancy rate. Double-clicking on the latter approximately a quarter of Manhattan's office vacancy were in the form of subleases compared to half in San Francisco.

Causes and implication of the pandemic increase in house prices

Harvard Joint Center for Housing Studies fellow Don Layton's excellent summary of the state of play in pandemic-era US residential housing. Key point, don't expect a replay of the Great Recession with its Ownership Society hangover from binging via loose lending standards and the use of “house as piggy bank” which led to a foreclosure crisis and 1-in-4 homes being underwater. We will surely face headwinds in the days ahead, but gross pattern-matching will not provide the right insights.

Highest annual appreciation of Purchase-Only FHFA API since 2004-5

FHFA House Price Index (HPI) Monthly Report: “The 12-month gain of 10.2% in October is the highest annual appreciation observed since the 2004- 2005 period. Extremely low mortgage rates and a limited supply of homes for sale continue to propel price gains. The data do not yet reflect renewals of some local and state COVID-19 restrictions.”

This index is derived from data on mortgages conforming to Fannie Mae and Freddie Mac limits.

U.S. home prices hit 14-year high in October

"The S&P CoreLogic Case-Shiller index covering home prices of all nine U.S. census divisions, reported an 8.4% increase in October from a year ago. The National Index is now up 24.5% from its former high in July 2006."

Many reasons, but the one provided by the guy overseeing the index, that “it’s likely COVID-19 has pushed buyers to move from urban apartments to suburban homes” is one of the less plausible ones since the we have yet to see undisputed data supporting thesis of a secular bum rush out of the cities (ex-NYC).

“The National Index is now up 24.5% from its former high in July 2006.” — This daunting stat translates to a slightly less almighty CAGR of roughly 1.6%

NYT: The Real Estate Collapse of 2020

 The median Manhattan rent of $2,776 this past November was down 12.7% year over year, exceeding “the biggest price drop during the Great Recession, when prices fell nearly 10 percent,” while the suburbs witnessed 20%+ growth in median sale prices. Looking forward, however, the number of new signed contracts in NYC’s urban centers have been on an upswing while the suburbs are reverting to long-run norms.

As ever, The New York Times seems to have forgotten that land mass west of the Hudson in its reporting, where “sales of luxury homes skyrocketed 101.6% year over year.”

Redfin: Luxury Home Sales Surge a Record 61%

“The 49 most populous U.S. metropolitan areas all experienced at least double-digit growth in luxury-home sales during the three months ending Nov. 30. The biggest jump was in Newark, NJ, where sales of luxury homes skyrocketed 101.6% year over year.”

As we head into the second calendar year of this pandemic-fueled housing bull run, we seem to have encountered two word pairs that likely have not entered our collective consciousness in a single sentence in well over fifty years - “Newark, NJ” and “luxury homes.”

In all seriousness, the Northern NJ market has been a key beneficiary of the one major evidence-rich migration story of 2020, the once-in-a-generation outflow of residents from NYC that have also tilted definitively toward the upper end of housing stock. Despite my sophomoric attempt at humor, kudos to Redfin for illustrating the dispersion of trends across the housing stratifications.

Thoma Bravo acquires RealPage

Thoma Bravo acquires RealPage, Inc. for $10.2 billion. The pace of proptech transformation is quickening.

Mortgage originations "on pace for best year ever"

While we are ending 2020 with mortgage originations “on pace for best year ever” (https://lnkd.in/grd-epN) turbocharged by refinance volume, should we be concerned by the increasing disparity in Fannie Mae home purchase sentiment between those who already are homeowners and those renters looking to get into home ownership? The latter category have been harder hit by the economic ravages associated with pandemic and have been sitting on the sidelines during this housing value bull market. 

Door #1: The HPSI disparity between cohorts must converge for a long term sustainable purchase mortgage market, or

Door #2: We have nice single family rental unit for you...

Realtor.com top housing markets

What to make of a year-over-year comparison of the top housing markets as published by realtor.com? 

• The 2021 list is composed of seven 2mm+ population markets, with the rest at under 1mm... Boise, Harrisburg, Oxnard
• The prior year’s list OTOH had zero in the 2mm+ category and only four in 1mm-2mm tranche... Winston-Salem, Memphis, Rochester, Tucson
• Within regions, there’s a flight to mass... Denver > Colorado Springs, Charlotte > Winston-Salem/Charleston/Columbia
• Even with Elon Musk’s emigration to #TechSAS, no one needs to worry if the last person leaving California will be turning off the light
• Only one market shows up in both lists... Boise

Despite the mounds of breathless anecdotes about discontinuous mobility, the real action is in the larger established markets, as consumers take the leap into home ownership, existing ones trade up and others incrementally fan out within the metro areas in search of space and affordability.

Data is the oil... residential real estate edition

"In recent years, as finance has computerised and algorithms have come to dominate markets, data has evolved from being a byproduct of transactions to 'the lifeblood of finance'" (quote by Audrey Costabile Blater PhD of Aite Group)

Buried in nearly every piece on this matter is mention of the Ellie Mae purchase by Intercontinental Exchange which may seem a bit dissonant, but residential mortgages provide some of the richest and most sizable, long duration data sets around, one that's barely being leveraged when compared to adjacent financial sectors, and generally at a remove. This may be attributable to the cloistered nature of the US mortgage market, a $10Tr+ cul-de-sac in the financial markets.

But, don't fret. The Black Fleet of exogenous disruption is at the mouth of this sector's Edo Bay.

The myth of GSE release

“(FHFA) Director Calabria seems more interested in crippling the GSEs operationally than making a release from government control truly possible.”

Christopher Whalen may be indulging in a bit of psycho-analysis, but if you take Grover Norquist’s quip about getting government “to the size where we can drown it in the bathtub,” and substitute the object of affection with Fannie Mae/Freddie Mac, you’re likely close to the good director’s world view.

Disparate outcomes of loan deferral/forbearance programs

The Wall Street Journal highlights the disparate outcome of loan deferral programs set out by the Cares Act, which have been "of greater benefit to homeowners and college graduates, many of whom entered the recession in relatively good financial shape. Lower-income workers, who are more likely to rent and to not have a college degree, saw less benefit."

In a fractal turn within mortgages, one sees a marked divergence in impact, with the Federal Housing Administration and U.S. Department of Veterans Affairs loans having 2.6x higher rate of forbearance than the generally better credit Fannie Mae and Freddie Mac loans. (Source: Black Knight McDash Analytics)

Class C apartment occupancy tightest

Impressive analysis by Jay Parsons at RealPage showing the divergence in occupancy levels across apartment classes that point to a severe undersupply in affordable housing.