Demand for Houses Boosts Home Construction

A surge in home-buying demand and limited inventory for existing homes is spurring construction to help fill the gap.

Home builders attribute their robust sales to low interest rates, a shortage of existing homes for sale and consumer willingness to move farther from city centers in exchange for more space.

New single-family-home sales rose 13.9% in July from June to a seasonally adjusted annual rate of 901,000, the highest level since December 2006, according to the Commerce Department. Single-family housing starts, a measure of U.S. home building, rose 8.2% in July from June to the highest seasonally adjusted annual rate since February.

“The demand feels really good right now,” said Martin Connor, chief financial officer of Toll Brothers Inc. “The longer it goes, the more comfortable we are that it’s got longer legs.”

The strength in the home-building sector underscores the uneven nature of the economic recession, which has hit low-wage workers especially hard. While millions of workers have lost their jobs in recent months, those who are still employed have saved more money due to the pandemic and can take advantage of record-low mortgage interest rates.

Home builders’ positive outlook is a sharp turnaround from early spring, when coronavirus lockdowns forced construction sites to halt in some parts of the country and builders swiftly cut spending on land acquisitions and new projects. U.S. home-builder confidence rose in August to match the record high last reached in 1998, up from an eight-year low in April, according to the National Association of Home Builders.

The S&P Homebuilders Select Industry Index is up 15.3% this year as of Monday, exceeding the 8.3% rise in the S&P 500 over the same period, according to FactSet.

Home builders also are benefiting from demographic changes, as younger millennials are entering their early 30s and accounting for a growing portion of home sales. Booming demand also has pushed sales of previously owned homes to multiyear highs.

Housing demand has outpaced supply for years, but the housing shortage has become even more acute in the existing-home market in recent months as the pandemic has made some sellers reluctant to list their homes. At the current sales pace, there were 3.1 months of existing homes available for sale at the end of July, according to the National Association of Realtors. In comparison, the new-home market had 4.0 months’ supply available at the end of July, according to the Commerce Department.

When Stephanie and Sven Christensen moved to Grand Haven, Mich., this year for Mr. Christensen’s job, they couldn’t find anything on the market that fit their needs. They decided to build a new house instead.

“We’re super, super excited,” Ms. Christensen said. But “we would have much preferred to find a house that would work for us that we could just buy and move into.”

In response to the strong demand, home builders are raising prices. The median sales price of a new house sold in July was $330,600, up 7.2% from a year earlier.

Home builders are limited in how quickly they can grow due to shortages of skilled labor, delays in obtaining some appliances and rising land costs, said Ali Wolf, chief economist at Meyers Research.

Lumber futures also have climbed to a record high, pushing the cost of building a single-family home up by more than $16,000 since mid-April, according to the NAHB.

Eighty percent of builders in August said challenges on the supply side are going to affect their sales plan this year, up from 30% in June, according to a Meyers Research survey.

“You can’t just build 25% more houses,” said Sheryl Palmer, chief executive of Scottsdale, Ariz.-based Taylor Morrison Home Corp. “We just won’t be able to meet the demand overnight.”

Housing economists say high unemployment could also limit home sales in the coming months, especially if job losses spread to affect more high-paid workers.

Ty Andersen paid a deposit on a townhome under construction in Bluffdale, Utah, in April, before being laid off from his digital-marketing job in May. He hopes to find a new job before he applies for a mortgage loan in the fall.

“I’m beginning to worry more” about the home purchase falling through, he said. “I just keep pushing forward with the hope that I will find a job and that it will work out.”

—Mark Maurer contributed to this article.

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Foreign Home Buying Dries Up, Easing the Way for Domestic Buyers

Foreign buying of U.S. homes was a driving factor in markets from California to Florida, helping prices reach new highs. Now, the pandemic, reduced travel and immigration restrictions are further undermining already weakening international demand.

Overseas residential real-estate purchases climbed steadily between 2011 and 2017, peaking at $153 billion in the year ended March 2017, according to the National Association of Realtors. About 60% of foreign buyers are recent immigrants or foreigners who live in the U.S., while others buy U.S. homes as investment properties or vacation homes, according to NAR.

Foreigners represent a tiny percentage of overall buyers. But because they have tended to cluster in coastal cities like New York, Miami and the Los Angeles area, they sometimes have had an exaggerated influence in these markets, especially at the higher-price end. Foreigners also were more likely to pay cash, making their offers more attractive to sellers.

Foreign appetite fell sharply in 2018 and 2019, according to NAR. Much of the buying came from China. It slowed in 2019 after the Chinese government implemented new controls over foreign currency purchases and as the country’s trade dispute with the U.S. heated up. A stronger dollar, which makes U.S. homes more expensive in foreign currencies, and concerns about global economic growth slowed overseas buying more broadly.

This year, demand looks likely to be even weaker, real-estate agents say.

Limited travel between the U.S. and other countries, worries about virus transmission and new restrictions on immigration could weigh on international investment in U.S. housing this year.

In the latest setback for foreign homeownership in the U.S., President Trump signed an order June 22 temporarily barring new immigrants on certain employment-based visas through the end of the year.

While the lack of overseas demand may disappoint homeowners in major coastal cities that attracted much of the foreign demand, local buyers who have lost out in bidding wars to deep-pocketed foreigners might be relieved.

“Some decline in international buying activity I don’t think necessarily harms the U.S. housing market,” said Lawrence Yun, NAR’s chief economist. “If anything, it doesn’t put any additional upward pressure on home prices, which have been a major concern for buyers on the affordability front.”

Home prices have continued to rise during the pandemic, even as the rate of home sales has dropped. The supply of homes for sale remains limited in many markets, and demand from buyers has increased in recent weeks as business activity has opened up in many states and mortgage rates have stayed low.

Foreign investment in U.S. housing can push up local home prices in select markets, according to a working paper released last monthby Caitlin Gorback and Benjamin Keys of the University of Pennsylvania.

The paper found that in ZIP Codes with a high proportion of foreign-born Chinese, house prices between 2012 and 2018 grew by 8 percentage points more than in comparable ZIP Codes. These areas, which in many cases also attracted strong local demand, could be vulnerable to price erosion as both domestic and foreign buying pulls back.

“The neighborhoods that are highly exposed to foreign investment on the upside are also exposed on the downside,” Mr. Keys said.

Many foreign investors buy homes for their children to live in while attending school in the U.S., and those purchases are on hold while families wait to see whether schools will be open in the fall, said Vicky Silvano, broker at Baird & Warner in Chicago.

“Because of the pandemic, the people that I work with are just on a ‘wait and see’ right now,” Ms. Silvano said. For foreign investors who own homes in the U.S., “I think there’s going to be more selling if the kids don’t come back to school” this year, she said.

Indiana University has drawn many foreign buyers to Bloomington, Ind., in the past decade, said Tracee Lutes, broker owner at Re/Max Acclaimed Properties.

“I think we will have a lot fewer foreign investment buyers here this year…with the uncertainty in the university plans and the uncertainty in the Covid situation,” she said.

Indiana University said in May that it plans to open in the fall for a mix of in-person and online classes.

Housing demand is strong in Bloomington, and a decline in foreign investment could be a boon to local shoppers, Ms. Lutes said: “I think you would see more in-state people, local people, that would take advantage of the ability to buy.”

Still, some see foreign buying picking up once normal travel resumes. In New Jersey and New York, Grace Tan of Prominent Properties Sotheby’s International Realty said her international clients in countries like China are already planning to shop for homes in the U.S. once international travel picks up.

“These clients are still not comfortable buying virtually,” she said. “They will come back. I already get the phone calls.”

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Coronavirus Forcing Home Buyers to Scramble to Close Deals

Real-estate agents are rushing to help home buyers and sellers close pending house sales, as the pandemic poses unprecedented obstacles to a high-touch process traditionally done in person.

House hunting usually involves a lot of contact, from the initial tour or open house to the final inspections and appraisal. The official closing is often an in-person meeting with a notary or attorney who oversees document signings.

With the coronavirus pandemic bringing shelter-in-place orders, the real-estate industry has been compelled to find workarounds for every step of this process, often having to navigate local requirements and consumer anxiety.

Home sales are now closing in parking lots where attorneys pass documents through car windows and throw away pens after each use, said Leslie Turner, founding partner at Maison Real Estate in Charleston, S.C.

“Everything’s just stopped” in terms of new business, she said. “We’re just trying to get the properties that we have under contract across the finish line to close.”

While some of the technology to enable remote home closings has existed for years, many real-estate companies are adopting it en masse for the first time.

“This is a business that time forgot,” said Vishal Garg, chief executive of online mortgage company “It operates literally on paper and fax.”

Some state Realtor associations are recommending addenda for home-purchase contracts that extend closing dates if pending closings are delayed because of the pandemic. Buyers and sellers are also scrambling for alternatives to in-person inspections and appraisals, which are traditionally required for sales and loans to go through.

“It’s been a really challenging time,” said Kelli Griggs, co-founder of Navigate Realty in El Dorado Hills, Calif. “It’s just been a different focus—rescuing deals versus trying to procure them.”

Pending home sales rose 2.4% in February from a month earlier, the National Association of Realtors said Monday. Pending sales usually predate closings by one or two months, the association said.

Companies that sprang up in recent years to offer remote solutions for home buyers and sellers say they are seeing unprecedented demand.

Notarize, a five-year-old company that enables documents to be notarized online, expects to process at least $100 billion in transactions on its platform this year, up from about $10 billion last year, said Chief Executive Pat Kinsel.

“A lot of our partner industries are in crisis right now because they cannot complete really important transactions,” he said.

More than 20 states already have laws allowing electronic notarization, and a handful of others, including New York, issued executive orders in March to permit them. A federal bill on electronic notarization was introduced in the Senate in March.

Many notaries, home inspectors and appraisers are self-employed or employed by small businesses. Most of them are still allowed to work, even under various shelter-in-place orders around the country, but many are choosing not to out of health or safety concerns, according to industry groups. Moving companies are also still allowed to operate in many cities and states.

Nick Gromicko, founder of the International Association of Certified Home Inspectors, estimated that three-fourths of the 30,000 home inspectors in the U.S. and Canada are unwilling to do inspections right now. “Financially, it means that it’s going to hurt them,” he said.

Miller Samuel Inc., a New York City appraisal and consulting firm, stopped doing interior appraisals in mid-March, said Chief Executive Jonathan Miller. More lenders are accepting “drive-by” appraisals based on exterior inspections or “desktop” appraisals based on tax records and other documents, he said.

“We’re needed to help keep the economy going,” he said, but “I’m not knowingly sending my staff into harm’s way.”

The Federal Housing Finance Agency on March 23 directed Fannie Mae and Freddie Mac to accept alternatives to in-person interior appraisals until May 17.

But some lenders are still requiring interior appraisals, said Bill Garber, director of government and external relations at the Appraisal Institute. “If [appraisers] do have concerns, our suggestion is to reject the assignment,” he said.

Another obstacle is each county’s recording office, which keeps property ownership records. As of midday Monday, 149 county recording offices around the U.S. were closed, another 998 had reduced hours or service, and the status of almost 2,000 was unknown, according to the American Land Title Association, which is crowdsourcing the information from its members.

In the counties with closed offices, “it’s near impossible to actually complete a mortgage closing,” said Steve Gottheim, senior counsel for the association.

Most Americans live in counties that allow electronic recording, but some offices are still paper-based, he said.

The longer these offices stay closed, the higher the risk that documents could be recorded in the wrong order or that the lack of timely property information could enable fraud, he said.

“Between appraisals and notaries and county clerk’s offices, there’s a lot of obstacles to just getting people to be able to close their mortgages,” Mr. Garg said.

As more companies enable remote closings, real-estate executives said the increased use of technology in the closing process could become permanent for consumers who prefer the convenience.

Darry Dykstra used electronic notarization in late March to remotely close on the sale of an investment home in Plant City, Fla. “It was pretty much a no-brainer,” he said. “Even without the coronavirus, I don’t see me going to the closing table anymore.”

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Home Builders Still Hammering Away but Fear a Slowdown Looms

While much of American business has shut down because of the coronavirus pandemic, home builders are still building houses.

But these companies are bracing for a sudden drop in demand due to the outbreak and the weakening U.S. economy, which is likely to slow construction and exacerbate the national housing shortage.

Most parts of the country have allowed housing developments to continue, but other issues threaten to derail some projects. They could be delayed by difficulties in obtaining government permits or inspections. Some builders are reporting supply-chain disruptions for materials like lighting and plumbing fixtures related to imports from China and other countries.

Home builders also anticipate a sharp slowdown in new projects. Home-buying demand was strong earlier in the year, boosted by low mortgage rates. But now, many potential buyers are facing layoffs, drops in the value of their stock-market portfolios and widespread economic uncertainty.

“It is a double whammy,” said Brad Hunter, managing director at real estate advisory firm RCLCO. “The builders are being hit simultaneously with a sudden drop in traffic through their models and showrooms and also disruptions in supply.”

At Lennar Corp., one of the nation’s biggest home builders and bellwether for the industry, construction has continued and customers are still buying, said Stuart Miller, Lennar’s executive chairman, in an earnings call Thursday. Lennar shares rose 2.2% Thursday, more than double the increase of the broader stock market.

But the company said it is cutting spending on land acquisition, land development and new projects. It also paused stock buybacks and suspended its earnings guidance.

“As the economy slows, we expect that our traffic will decline and we will see the corresponding slowdown in sales,” Mr. Miller said. “There is enough uncertainty where nothing is on autopilot.”

A Lennar employee was one of the first Americans to die after contracting the coronavirus, he said.

The S & P Homebuilders Select Industry index has slid 41% this year, exceeding the 25% drop in the S&P 500 over the same period, according to FactSet.

Housing demand has outpaced supply in recent years. The U.S. has a national shortage of 3.3 million housing units, mortgage-finance giant Freddie Mac said last month. Home builders have been ramping up to help fill this demand.

Last month, when the pandemic was starting to take hold in the U.S., housing starts fell 1.5% from the prior month but rose 39% from a year earlier, according to Commerce Department data released this week. Residential permits, which can signal forthcoming construction, fell 5.5% from the prior month.

In February, there were 539,000 single-family homes and 683,000 apartments under construction in the U.S., according to the data.

Home builders are in a stronger position than during the financial crisis, when a number were highly leveraged. Many are likely to slow or stop acquiring new land in the short term so they can preserve cash, said Fitch Ratings.

Home builder confidence slid in March, the National Association of Home Builders said Tuesday. About one in five home builders who responded to the survey reported supply disruptions due to virus issues in other countries, and that proportion rose to one-third for builders who responded after March 6, NAHB said.

About 30% of building materials imported to the U.S. comes from China, according to Dodge Data & Analytics.

The industry might also face issues obtaining certain supplies domestically. Vice President Mike Pence on Tuesday called for construction companies to donate a certain type of face mask to hospitals to help alleviate a shortage and  to not order more of those masks.

Local governments have taken varied approaches to home construction so far during the outbreak. Boston required all construction sites to halt work earlier this week. California Gov. Gavin Newsom on Thursday ordered all Californians to stay at home and clarified that home construction is exempt. Also on Thursday, Pennsylvania Gov. Tom Wolf ordered most businesses, including home construction, to shut down.

Some analysts said outdoor construction, where workers can maintain distance from each other, is less likely to be affected than interior work.

Buyers who are ready to move into completed new homes might have trouble getting the required closing documents such as loans and insurance if businesses or local government offices are closed, said Jerry Howard, chief executive of NAHB.

Similarly, home builders that are ready to start construction could be unable to get the required permits, he said, and projects that are mid-construction might pause until an inspection can be completed.

“The fact that the country is more or less shutting down is going to force construction sites to shut down until and unless we can solve some of these problems,” he said.

Bensonwood and Unity Homes, which build components of houses in factories before assembling them on site, have stopped hiring local construction crews to help their employees assemble homes, said Tedd Benson, who is chief executive of both companies.

The companies have also separated workers at their factories “into cocoons, where they are handling only the tools that they are handling and nobody else is handling those tools,” he said.

Mr. Benson said he expects some on-site assemblies to be delayed due to the virus. “People are scared, and they should be,” he said.

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