By NAHB Chief Economist Robert Dietz
The single-family housing market rebound continues, largely thanks to lower mortgage interest rates. The average 30-year fixed rate is currently 3.7% — whereas, just one year ago those rates were hovering around 4.8%. Although a 110-basis-point decline may seem small compared to rate changes of years past, home buyers have become significantly more sensitive to rates since the Great Recession.
Because of the lower cost of home buying, most housing metrics have improved in recent months. The NAHB/Wells Fargo Housing Market Index, which measures builder confidence in the single-family market, climbed from a level of 60 a year ago to 70 this month. In October, single-family construction starts expanded by 2% to a 936,000 seasonally adjusted annual rate. Despite the slow start for 2019, single-family starts are down only 1% on a year-to-date basis and approaching flat conditions for 2019 as a whole. Permits for single-family homes have been expanding since April, and the pace of starts has been improving since May.
Though the NAHB Home Building Geography Index has reported relative strength in exurban and even some rural markets, custom home building in the third quarter was 6% higher than a year ago. The improvement for the single-family sector extends to the resale market as well. Existing home sales increased slightly in October and were up 5.4% from a year ago. Existing inventory declined to a 3.8-month supply, which caused resale price gains to accelerate.
While single-family conditions have improved over the last year, multifamily construction has been relatively flat. The NAHB Multifamily Production Index declined 7 points to a level of 49, slightly below the break-even threshold of 50. Multifamily starts have cooled since August and are currently registering just a slight gain for 2019 on a year-to-date basis. Quarterly data indicate that more than nine out of 10 apartments are built-for-rent, compared to the historical norm of eight out of 10.
By Rob Deitz, PhD., Chief Economist, National Association of Home Builders
The economy has slowed, as evidenced by a 1.9% estimated GDP growth rate in the third quarter of 2019. Yet, housing continues to rebound thanks largely to lower mortgage interest rates, resulting in gains for single-family permits and starts since last spring. The home building component of GDP, residential fixed investment, made a positive contribution to the headline third quarter GDP number after six prior quarters of declines. Home building contributed 0.18 basis points to the headline 1.9% growth rate.
However, the slowing economy and anchored inflation data led the Federal Reserve to lower its federal funds target to a top interest rate of 1.75%. This marks the third cut of 25 basis points in 2019, after four rate hikes in 2018. In retrospect, the 2018 tightening of monetary policy was a policy mistake given tame inflation data and rising macroeconomic headwinds. That said, the revised, current dovish stance of the Fed — particularly its effect of lowering mortgage interest rates — has been a positive factor for housing since the spring.
The rebound for housing in 2019 is clear in recent home building data. The NAHB/Wells Fargo Housing Market Index (HMI) increased to a level of 71 in October, a 20-month high. Single-family starts increased to a 918,000 annual pace in September, marking four months of gains. While new home sales were relatively flat in September, sales are running 7.2% higher in 2019 on a year-to-date basis compared to 2018 transaction volume. And new inventory is down to a 5.5-month supply, suggesting additional construction gains ahead.
Being a member of NAHB has many perks, including access to great deals through your HBA’s Member Savings program. Members can enjoy discounts on everything from new computers to building supplies to vehicles.
Members can now add entertainment and travel to that list, thanks to a new affinity program with Entertainment Benefits Group (EBG). EBG, an e-commerce company, owns and operates the largest entertainment, sports and travel benefits program in the country. Products and services include:
- Theme parks (e.g., Disney, Universal Studios, SeaWorld)
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- Top shows and concerts
- Tours and attractions
- Zoos and aquariums
- Ski lift tickets and rental equipment
EBG serves more than 40,000 companies, providing more than 50 million employees with access to exclusive perks nationwide.
Learn more about these member perks from EBG and other important members savings programs at the NAHB Member Savings page.
Your Association is Working for You to Save Your Business Money
The Tax Reform Act of 2017 made meaningful change to the Federal tax code that has helped stimulate our country’s economy. It also created some confusion and unknowns. But your Home Builders Association and other associations have been working hard with the IRS to get you some answers and create the best outcome for your businesses.
IRS to Waive 2018 Withholding Penalties for Most Filers
The Internal Revenue Service has announced that it is waiving the tax penalty for many home builders and other small businesses that pay estimated quarterly taxes but whose 2018 federal income tax withholding and/or estimated tax payments fell short of their total tax liability for the year.
Treasury Issues Final Rule on Pass Through Entities
The Treasury Department has issued final regulations for the 20% pass through entity deduction under the Tax Cuts and Jobs Act of 2017. The final regulations concern the deduction for qualified business income under Section 199A of the Internal Revenue Code. This includes individuals, partnerships, S corporations, trusts, and estates engaged in domestic trades or businesses.
(the following content sourced from the National Association of REALTORS)
IRS Provides Clear Test on How 20% Deduction Applies to Rental Income, Exchanges
The IRS has issued final rules on the 20 percent business income deduction that was part of the 2017 Tax Reform Act. The new rule confirms that the deduction applies to your business income, as a real estate agent or broker, if you operate as a sole proprietor or owner of a partnership, S corporation, or limited liability company. It applies even if your income exceeds a threshold set in the law of $157,500 for single filers and $315,000 for joint filers. In addition, the new rule provides guidance on two other provisions: 1) whether any real estate rental income is eligible for the deduction, and 2) how the deduction applies to properties exchanged under Section 1031.
Eligibility of rental income
Rental property income also can qualify for the new deduction, as long as you can show that your rental operation is part of a trade or business. The IRS has released proposed guidelines that include a bright-line test for showing that rental income rises to the level of a trade or business. Under that safe harbor, you can claim the deduction if your rental activities-which include maintaining and repairing property, collecting rent, paying expenses, and conducting other typical landlord activities-total at least 250 hours a year. If your activity totals less than that, you can still try to take the deduction, but you will have to be prepared to show the IRS that your activity is part of a trade or business.
Eligibility of 1031 like-kind exchanges
Under earlier proposed regulations, if your income was above threshold levels set in the tax law–$157,500 for single filers, $315,000, for joint filers–and you had exchanged one property for another to defer taxes under Sec. 1031, the amount of the new deduction might be reduced because of the swap. NAR and other trade groups reached out to the IRS to change this treatment, and the IRS has made the change. Under the final rules, you can use the unadjusted basis of the depreciable portion of the property to claim at least a partial deduction.
The Fifth Circuit Court of Appeals in December ruled that the Department of Labor can cite general contractors for workplace safety violations that put subcontractors’ workers in danger. The case explored the legality of OSHA’s multi-employer citation policy.
The National Association of Home Builders has been challenging the multi-employer work site doctrine for years, and filed an amicus brief, along with the Texas Association of Builders and other construction groups, in the case, Acosta v. Hensel Phelps Construction Co.
Read the full report by clicking here.
Dr. Robert Dietz
Get your tickets now!
2019 is almost upon us. Start your year off right with a forecast of the industry for the year ahead.
- When: January 22, 11:30 a.m.
- Location: Greenville Convention Center
- Keynote Speaker: Robert Dietz, Ph.D., Chief Economist, National Association of Home Builders
The event is hosted by the HBA of Greenville, Greater Greenville Association of Realtors, Upstate Mortgage Lenders Association, and the Greenville Chamber of Commerce.
Make a day of it! Prior to the luncheon be sure to register for the mornings education sessions….more information to come.
Tell attendees about your business by setting up a vendor table at this event for $195 and showcase your product or services to the 300+ attendees. You can sign up using this registration link or by calling the HBA of Greenville office at 864-254-0133.