Back in March when the economy got turned on its head, no one had any idea how the shutdowns, quarantines and the general induced-coma of the economy would affect various sectors. Six months later, the results are ambiguous in many parts of the economy, but things are looking quite good in one critical sector: housing.
The Indexer reported in August that the housing sector was looking pretty good at the national level. Two months later, that assessment still holds, particularly in the South and West. Figure 1 shows sales of newly constructed single family homes for the first three quarters of the past four years.
In the South and West, sales have been climbing steadily since 2017. And despite the shutdowns of construction sites earlier in the year, and the general uncertainty of the economy, sales are booming in the first three quarters of 2020.
The boom in home sales is happening right in the middle of the market. Figure 2 shows sales in four price brackets for homes in the West, in addition to median and average sales prices.
Sales at the most affordable and least affordable levels have been slower, while sales in the middle–$300,000 to 500,000—have been growing rapidly. In the past year, sales in the lowest price category fell 11 percent, and sales in the two highest categories increased 38 percent, while sales in the middle category increased 85 percent.
After a dip in permitting activity during the shutdown (shutdowns and work-at-home orders slowed permit processing) the pipeline of new homes is rising. Figure 3 shows a three-month trailing average of permitting for single family homes.
Permitting has picked up everywhere in the country, but especially in the South and West. For September alone, 633,000 permits were issued in Southern states and 269,000 permits were issued in Western states.
Things are not looking so positive on the multi-family side. Figure 4 shows permitting for all projects other than single family detached.
Permitting for multi-family housing was falling before the pandemic hit and has continued to fall. Because the drop in multi-family began before February, it would be hasty to attribute it to a declining desire to live in dense environments. More likely, the multi-family industry is facing a combination of changing demographics (the Millennials are almost all out of their parents’ houses and the older ones are moving into detached houses as they form families) and the cyclical patterns that the industry often sees.
While the housing picture across the western U.S. is looking up, things are not quite so bright in Washington. Figure 5 shows permits issued in Washington state since November 2019.
Single family permits are relatively flat over the year. Multi-family permits jump around because they tend to come in larger chunks, but are also relatively flat over time. Home sales in general are doing very well in the state, but new product is not hitting the market with the same enthusiasm.
Looking Ahead
Housing is an excellent sector to lead the nation out of its slump. It employs people at a wide range of skill levels at good pay. Once homes are finished, their new owners will spend money on furniture, swing sets, shrubs, picture frames and all the other things that go into a new house. And then the new owners become taxpayers, shoring up the finances of their local government. Let’s hope this bright spot in the economy continues to shine.
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