Tag Archives: construction
Low mortgage rates and strong demand benefitting US home builders
Low mortgage rates and strong demand should create a positive outlook for home builders in the United States but a serious labour shortage could hold them back. During the 2009 recession nearly a quarter of construction workers lost their jobs as the housing market collapsed and there is evidence that a number of labourers are not returning, leaving remaining construction workers overstretched, says an analysis report from Hermes Investment Management. It explains that this lack of qualified labour causes two fundamental problems for the industry. First, the completion rate struggles to keep pace with demand, which is on the rise in the US, and secondly margins shrink as workers command much higher pay. However, one of the most fundamental challenges facing US home builders is a reduction in first time buyer demand. The report suggests that mounting student debts, lagging wage inflation, scarce financing and lifestyle preferences weigh on the desire to buy a first home. ‘While demand for housing is generally rising in the US, the lack of younger buyers could permanently or semi-permanently remove a key driver of demand,’ said analyst Andrey Kuznetsov. He pointed out that 49% of 25 year olds lived with their parents in 2013, some 20% higher than in 1999, dramatically reducing the aggregate number of households even without adding those choosing or having to rent. ‘While overall demand still outstrips supply, this gradual cultural shift is removing some pipeline demand,’ added Kuznetsov. The report also explains that housing market trends specific to certain US states can also work against home builders. Demand for housing in certain parts of Texas, such as Houston, started deteriorating after the oil price dramatically declined in late 2014 and continued to fall throughout the last year. This initially affected more expensive properties, but is now also impacting lower priced homes. In California, where international buyers are usually a significant presence in the market, the stronger US dollar and weakness in buyers’ home economies are deterrents. Additionally, the volatility in equity markets could slow the demand from employees of the historically buoyant tech sector in the state. Home builders with above average exposure to these markets are increasingly at risk. However, it adds that short housing supply and low mortgage rates, the average 30 year loan charges 3.65% interest, suggest that fundamentals for the sector are strong. ‘However, in an environment where build times are lengthening, margins are under pressure, demand from first time buyers is declining and certain regional risks are increasing, we think there is more risk to the downside. Furthermore, the sector is trading at a relatively expensive level compared to others, supporting our negative view,’ said Kuznetsov. Continue reading
Irish property prices up 8% year on year but start of 2016 sees growth slowing
Residential property prices in Ireland increased by 8% in the year to February 2016, up from 7.6% in January and an increase of 14.9% recorded in the 12 months to February 2015. The data from the Central Statistics Office also shows, however, that month on month ere was no change in prices compared with a decrease of 0.5% recorded in January and a decrease of 0.4% recorded in February of last year. A breakdown of the figures show that in Dublin prices decreased by 0.1% in February and were 4% higher than a year ago. House prices decreased by 0.3% in the month and were 4% higher compared to a year earlier while apartment prices were 4.3% higher when compared with the same month of 2015. Property prices in the Rest of Ireland rose by 0.1% in February compared with no change in February of last year and were 11.5% higher than in February 2015. It means that house prices in Dublin are 35.1% lower than at their highest level in early 2007 and apartment prices are 40.9% lower than they were in February 2007. Prices in the rest of Ireland are 35.2% lower than their highest level in September 2007 and overall the national index is 33.8% lower than its highest level in 2007. Meanwhile, the latest data from Myhome.ie shows that house prices continued to rise in the first quarter of 2016 but the rate of increase has moderated. The national mix adjusted asking price measure rose by 2.2%, in the first three months, up 5.7% year on year while in Dublin asking prices were up 2.5% and 12.7% respectively. According to the survey the mix adjusted asking price for a house nationally is €198,000 while in Dublin it is €276,000. For new instructions the median price in Dublin has risen 1.4% in the first quarter to €299,000 while outside Dublin the figure has risen 6.3% to €169,000. The author of the report, economist Conall MacCoille from Davy, said the moderation in house price inflation was a positive development and did not mark a period of sustained declines. ‘A mix of factors probably explains the recent moderation in house price growth. First of all affordability was becoming stretched in Dublin. Secondly the Central Bank’s new lending rules may have reined in exuberant price expectations. Thirdly the end of capital gains tax exemptions may have inflated demand mid-year, leading to price falls towards the end of last year,’ he explained. The affordability index shows that house price to income ratio is highest in Dublin and Mid Leinster at 5.9 and 4.9 respectively while the midlands at 2.8 and the mid-west at 3.4 looks most affordable. MacCoille explained that the figure for the country as a whole is five and although Irish property prices are still well below 2007 peak levels, they no longer look cheap relative to incomes he said and he believes that population increases and supply constraints will… Continue reading
UK new house building target not over ambitious, analysis suggests
The UK Government’s target of building a million new homes over the next few years is not as ambitious as some may think, according to a new analysis from the Royal Institution of Chartered Surveyors (RICS). The individual components of the goal includes 200,000 Starter Homes, an initiative still working its way through parliament, and 135,000 shared ownership properties about which little has been said to date. Trying to access the success of such a programme it about the official data on housing starts, according to RICS chief economist Simon Rubinsohn, and these show that a mere 144,000 new units were begun through the course of 2015. But he points out that other data produced by the Department for Communities and Local Government (CLG) casts some doubt on the accuracy of the quarterly figures which are produced on a high frequency basis and released within a short period following the end of the quarter. He explains that there is arguably more value to be gained by focusing on the less frequently released net supply numbers, which are based on completions rather than starts, as they reflect the additions to the stock of housing units for habitation. The quarterly completions series showed an additional 125,000 homes built in 2014/2015, the last full year for which data is available, while the annual net supply series puts completions at 155,000. Rubinsohn adds that net conversions added close to nearly 5,000 additional units over the period and this was supplemented more than 20,000 units from ‘change of use’. The latter figure has increased sharply over the past few years as a result of Permitted Developments Rights enabling the shift from office class to residential. And then demolitions amounted to just over 10,500 in 2014/2015. ‘So pulling this altogether, in the last financial year, there may have been 125,000 housing completions in England, 155,000, just over 180,000 or, after demolitions, 170,000. And on the basis of the higher number (gross additions to supply), the government doesn’t appear that far off its ambition for 2020,’ Rubinsohn argues. ‘None of this is designed to minimise the fundamental nature of the housing crisis which reflects the fact that household formation is still projected to comfortably outstrip projections for the supply of new units even on the most generous calculations,’ he says. ‘This is also clearly visible in the estimates by our professionals for medium term growth in house prices and rents. The February Residential Market Survey suggested both are likely to increase by at least another fifth over the next five years comfortably outstripping the probable rise in wages,’ he adds. Continue reading
