Manage episode 291776011 series 1248803
In this Real Estate News Brief for the week ending May 1st, 2021… the economic recovery boom, home price growth, and what builders are doing about lumber prices.
We begin with economic news from this past week, and the results of a two-day policy meeting by the Federal Reserve. Fed Chief Jerome Powell acknowledged a big improvement to economic conditions, and the Fed no longer feels that COVID-19 presents a “considerable risk” to the economy. But Powell says the central bank is committed to its current stimulus strategy. As you know, short-term interest rates are near zero, and the Fed is buying $120 billion in Treasury and mortgage-backed bonds every month.
Economists say the economy is poised for a boom in 2021. In fact, first quarter GDP was 6.4%. Incomes were also up more than 21% last month, and spending was up more than 4%, thanks in part to government stimulus and those $1,400 checks. Many Americans also have more money saved than normal, and are now spending it on things like new cars and trucks, restaurants, travel, and other recreational activities. MarketWatch reports that Americans have almost $2 trillion dollars in savings that they wouldn’t normally have, and are likely ready to spend.
But, Powell says: “While the recovery has progressed more quickly than generally expected, it remains uneven and far from complete.” He also expressed some concern about how fast home prices are rising, but said he hoped that builders will respond with more supply, which would slow that price growth.
The S&P CoreLogic Case-Shiller home price index shows the yearly pace of home price appreciation was 11.9% in February. On a month-to-month basis, it was up 1.2%. Prices are up in all parts of the country, but the Rocky Mountain area is seeing the biggest yearly rate of increase at 15.4%.
Powell stands firm on his view of inflation, saying that the Fed believes any price pressure will be temporary. He also wants to see it slightly above 2%. The yearly average was up to 2.3% in March, and economists are expecting it to move higher from there.
The latest unemployment report shows another drop in the number of people applying for benefits. Those state claims were down 13,000 from the previous week, to 553,000, according to the U.S. Labor Department. The total number of people collecting benefits from eight different state and federal programs is also down by almost a million in one week -- from 17.4 million to 16.5 million.
Pending home sales moved higher, although the lack of inventory remains a problem. The National Association of Realtors says pending sales were up 1.9% in March. Compared to March of last year, they were up 23%.
Consumers are feeling a lot more confident as the economy recovers and more people are vaccinated against COVID-19. The Conference Board says that consumer confidence hit a 14-month high in April, with an index reading of 121.7. The University of Michigan had a similar report, saying that that index rose to the highest level since the beginning of the pandemic.
As for mortgage rates, they didn’t move much this past week. Freddie Mac says the 30-year fixed-rate mortgage is still under 3%. It was up just one basis point to 2.98%. The 15-year was up 2 basis points, to 2.31%.
In other news making headlines...
Lumber Prices Add $36,000 to New Homes
Lumber prices continue to add tens of thousands of dollars onto the price of a new home. The National Association of Home Builders says that prices have tripled over the past 12 months and are now adding almost $36,000 to the price of an average single-family home. That’s up from $24,000 in February.
Prices began rising at the start of the pandemic, when a number of lumber mills shut down. They’ve been slow to reopen as the coronavirus numbers continue to surge in some areas. But there is hope that prices will retreat later this year, as mills reopen and supply ramps up.
In the meantime, many developers are adding escalation clauses to their contracts. They specify that if the cost of building materials increase by a certain amount, the buyer would be responsible for paying the additional amount. Sometimes, builders share that increase with the buyers.
Builders are also trying to keep costs down by pre-ordering lumber or by getting lumber price guarantees. They may also delay construction if costs get out of control, or do other parts of the project while lumber prices are spiking.
Mature Trees Have Become a Hot Commodity
The new focus on home upgrades has increased the demand for what some are calling “trophy trees.” According to an article in the Wall Street Journal, luxury homeowners are requesting big trees as a focal point for their yards. But they aren’t willing to wait for them to grow, which has created a market for the purchase and relocation of these magnificent trees from other people’s yards.
A landscaping and tree relocation company in Florida called Green Integrity says business is booming. Owner, Walter Acree, says they drive wealthy clients around the Southern part of the state looking for the perfect tree. When they find one in someone’s yard, they approach the owner to make an offer, buy it, and relocate the tree. Acree says he recently gave one client a $250,000 quote to move a tree.
And they aren’t always nearby. Los Angeles real estate developer, Michael Chen, says it took a year-and-a-half to find a tree for a $65 million spec house in Beverly Hills. He ended up getting a 150-year-old 15’ olive tree from Tuscany.
You’ll find links to more information on the podcast page for this episode at NewsForInvestors.com