• Multifamily Developers Lose Confidence, Home Supply Stores Weather Housing Slump, Gen Z Leery About

    Multifamily Developer Confidence Declines

    Single-family builders are not the only ones fretting about what is now a months-long slowdown in housing demand. Multifamily developers are also feeling less confident about prospects for continued high occupancy and rental rates.

    The National Association of Home Builders’ quarterly multifamily production index, based on surveys measuring apartment builder and developer sentiment, dropped 10 points from the prior period to 32 in the third quarter, with numbers below 50 generally indicating negative sentiment. A similar index gauging landlord and manager sentiment on rental activity fell 15 points to 45 in the latest quarter, the trade group reported.

    “Although demand for multifamily housing remains strong in many parts of the country, some multifamily developers are starting to see signs of a slowdown,” Sean Kelly, executive vice president of Wilmington, Delaware-based developer LNWA and the trade group’s multifamily council chairman, said in a statement. “The ongoing problems of scarcity and high costs for land and materials is making it difficult to go forward with certain projects, particularly affordable housing projects.”

    Robert Dietz, the trade group’s chief economist, said multifamily developers are becoming cautious as material and supply constraints have created a growing pipeline of apartment projects that were started but not yet completed. Also, 79% of surveyed developers nationwide told the trade group that financing for new multifamily development is “somewhat or significantly less available” than it was a year ago, prompting the group to project a “significant decline” in multifamily starts in 2023.

    The survey findings arrived as the Commerce Department reported that the number of construction starts for residential projects with five or more units declined 0.5% from the prior month but rose 17.3% from a year earlier in October. Permits issued for those projects dropped 1.9% from the prior month but were up 11.2% from a year earlier.

    Year to date, single-family housing starts are down 7.1% and multifamily starts are down 1.2% from 2021.

    Home Supply Stores Weather Housing Slump

    Home improvement retailers Home Depot and Lowe’s both exceeded analysts' expectations for revenue and profits in their latest quarters, despite what are widely seen as worsening conditions for single-family housing demand. Lowe’s CEO Marvin Ellison told analysts, in fact, that his company is benefiting from home owners who are avoiding buying or selling in the current market, preferring to spend their rising disposable income where they currently live.

    “This unique combination of factors is causing homeowners to trade-up in place, preferring to invest in repairs and renovations to make their current homes meet their family’s evolving needs, rather than buying a new home,” Ellison told analysts during a quarterly earnings call Nov. 16. “This is why we’re so confident about the outlook for the home improvement industry even in a period of high inflation and rising interest rates, because the key drivers of our business remain supportive.”

    Atlanta-based Home Depot reported sales from its 2,319 stores rose 5.6% from a year earlier to $38.9 billion in the third quarter, as net income rose 5% to $4.3 billion. Home Depot reaffirmed its prior projection of 3% same-store sales growth for the full 2022.

    Mooresville, North Carolina-based Lowe’s, with 2,200 stores, reported third quarter sales rising 2% from a year earlier to $23.5 billion, though net income at $154 million was down considerably from $1.9 billion a year earlier. Lowe’s full-year guidance calls for 2022 to post comparable-store sales that are even or down 1% from 2021.

    These results came in the same week that the National Association of Realtors trade group reported that sales of existing single-family homes fell for the ninth consecutive month in October, with the 4.4 million transactions down 5.9% from the prior month and down 28.4% from a year earlier. That’s the lowest monthly number of sales since May 2020, even as the median sales price rose 6.6% from a year earlier to $379,100 in October.

    Gen Z Leery About Homebuying

    Many of the older members of Generation Z, generally those born since 1997, are likely to remain renters rather than buyers as they wait for home prices and mortgage rates to come down. Results of a new national survey from Freddie Mac, a government agency that backs home mortgages, found the generation is positive about the idea of homeownership but increasingly wary about obstacles in the current climate.

    One in three Gen Z respondents, or 34%, said homeownership at any point in the future “seems out of reach financially,” up from 27% in 2019. The figure rose to 35% for Black respondents and 50% to Hispanic respondents. The top hurdle identified by respondents was saving for a down payment, followed by insufficient credit history, unstable job situation, student loan debt and credit card debt.

    “Currently in the housing market, we’re seeing rising mortgage rates, insufficient supply and elevated house prices bringing about significant affordability challenges,” Pam Perry, a vice president tracking single-family housing equity at Freddie Mac, said in a statement. “Gen Z has taken notice and their hopes of homeownership have waned as the potential issues they may face in purchasing a home have become front and center.”

    Freddie Mac’s latest weekly survey of lenders, released Nov. 17, showed interest rates on most types of home loans still averaging well above year-earlier levels. But the 30-year fixed rate of 6.61% was down nearly a half-percent from the prior week, with the 15-year fixed rate of 5.98% down 0.4%.

    Outside of costs, more than 90% of Gen Z survey respondents said they preferred homeownership over renting because it provides more privacy, is a source of pride and allows for more control and independence. But 76% acknowledged renting provides more flexibility than owning, 65% said renting puts them closer to social activities, and 63% said renting is less stressful than owning.

    Source: www.CoStar.com