Downward Slide Seen in Housing Health Report
Housing indicators continue a downward slide that began in 2018, reports BuildFax in its recent Housing Health Report. While single-family housing authorizations increased 1.23 percent from December 2018 to January 2019, January marked the third consecutive month for year-over-year decreases in authorizations, with a 3.48 percent drop.
The trailing three-month outlook (November 2018 to January 2019) also showed repeated declines with a 3.04 percent decrease. This is particularly notable as continued year-over-year declines in single-family housing authorizations have historically been correlated with economic recessions between 1961 and 2018.
Existing housing maintenance and remodeling, which encompass work on existing structures, has also trended down for the past three months. In January 2019, maintenance volume decreased at a year-over-year rate of 6.47 percent and maintenance spend decreased 7.29 percent.
Existing remodel volume – a subset of maintenance that includes renovations, additions and alterations decreased at a year-over-year rate of 10.85 percent, and remodel spend, a consistently volatile subsection, increased 1.26 percent in January. Slowing activity in the housing sector may be symptomatic of global economic tensions and dramatic moves in the stock market.
“Declining housing activity during the last few months of 2018 has persisted into the new year,” said Jonathan Kanarek, chief operating officer of BuildFax. “January marks the third month of declines in new and existing housing supply. Given current economic conditions, including the recent government shutdown, sensitivity to interest rate increases and global market stressors, like ongoing trade negotiations, we were not surprised to see persistent declines. It is yet to be seen if an easing of these external factors will alleviate the housing slowdown.”
While key indicators are seeing repeat declines, demolitions are trending up. Over the past five years, demolitions have increased 16.65 percent on a national level, an indication of economic reinvestment. Demolitions often make room for new construction, serve as cleanup after a natural disaster and revitalize local communities. However, during an economic slowdown, housing projects following a demolition cease construction. In this case, incomplete demolition projects can further stifle a city or state’s growth.
Since 2013, the highest number of demolitions have taken place in California, Texas, Tennessee and Florida, reflecting reinvestment in those regions. However, in 2018, just three states saw year-over-year increases in demolition activity: California, Florida and Michigan. In Michigan, activity rose 258.81 percent year over year.
This is likely a result of increased activity in the city of Detroit, which has one of the largest demolition programs in the U.S.3 As part of a city-wide initiative to stimulate more housing growth, Detroit’s demolitions increased 30 percent between 2017 and 2018. So far, this activity has been a benefit for the region – estimated demolitions in Detroit increased surrounding home values by 4.2 percent. It will be important to watch the progression of demolition projects across the U.S. in 2019, particularly if a housing slump is on the horizon.
How Construction Activity Informs Economic Health & Insurance Risk Analyses
National construction activity has been and will continue to be a go-to indicator for economic health. The health of the housing market is two-fold. Of course, it’s important to see the growth of new construction as a critical indicator of economic health, but remodeling and maintenance specifically measures the health of the existing housing stock and consumer confidence.
Property owners are disinclined to start a remodeling project, which is often a substantial undertaking, if there’s anxiety in the market, low consumer confidence, or decreased access to capital. And structures that do not see regular maintenance activity will become greater risks, leading to a higher propensity for damage in the face of convective storms or natural disasters. These factors together (new building, remodeling, and maintenance) provide a comprehensive picture of the health of U.S. housing stock.