News and Updates

Sales of newly built, single-family homes rose to a seasonally adjusted annual rate of 657,000 units in November after an upwardly revised October report, according to newly released data by HUD and the U.S. Census Bureau. This is the highest sales pace since March 2018. However, on a year-to-date basis, sales are down 7.7% from this time in 2017.

The sales report was delayed due to the partial government shutdown.

“The sales increase was fueled by a notable uptick in homes sold at the affordable end of the market,” said NAHB Chairman Randy Noel. “There is clearly a demand for new home homes even as builders continue to grapple with supply-side challenges, including shortages of lots and labor and higher building material costs stemming from tariffs.”

“Solid job growth and growing household formations should support future demand for housing even as builders continue to address mounting affordability woes,” said NAHB Chief Economist Robert Dietz. “Builders are doing all they can to hold the line on costs to meet this demand, particularly at the entry-level market.”

A new home sale occurs when a sales contract is signed or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the November reading of 657,000 units is the number of homes that would sell if this pace continued for the next 12 months.

The inventory of new homes for sale rose to 330,000 in November. The median sales price fell to $302,400, as the market has shifted to lower-cost houses.

Regionally, on a monthly basis, new home sales jumped 100% in the Northeast, 30.5% in the Midwest and 20.6% in the South. Sales fell 5.9% in the West.

NAHB Chief Economist Robert Dietz provides more analysis in this Eye on Housing blog post.

The Federal Reserve ended its two-day meeting of its policymaking committee by announcing it would hold short-term interest rates steady and signaling that it will carefully evaluate future economic conditions before considering another rate hike.

NAHB Chief Economist Robert Dietz provides the following analysis of the Fed’s decision and how it could affect the housing market in an Eye on Housing post:

“As expected, the Federal Reserve’s monetary policy body, the Federal Open Market Committee, unanimously held steady the federal funds top rate at 2.5%. The Fed’s January statement was consistent with recent policymakers comments suggesting a more flexible stance toward monetary policy at the end of last year and the start of 2019.

“In particular, the statement indicated that the Fed will ‘be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.’ This is a decidely more dovish stance for the Fed relative to commentary from the Fall of 2018, reflecting anchored inflation expectations and economic softness in some sectors, including housing, as illustrated by today’s December pending home sales data from the National Association of Realtors.

“Moreover, the Fed, in an accompanying statement, noted that it could modify its ongoing balance sheet reduction, which reduces its net holding of Treasury bonds and mortgage-backed securities, leading to higher rates (quantitative tightening), if economic conditions warrant such a change. This revision notes that the Fed would ‘be prepared to use its full range of tools, including altering the size and composition of its balance sheet, if future economic conditions were to warrant a more accommodative monetary policy than can be achieved solely by reducing the federal funds rate.’

“In combination, these changes to the Fed’s monetary policy stance are more favorable for housing market conditions in 2019, which are currently challenged by growing concerns over housing affordability and sluggish growth for home building.

Total existing home sales fell 6.4% to a seasonally adjusted rate of 4.99 million in December, according to the latest figures by the National Association of Realtors. Sales are at their lowest level since November 2015 and down 10.3% from a year ago (5.56 million in December 2017).

Total existing home sales include single-family homes, townhomes, condominiums and co-ops.

Existing home sales remained sluggish in 2018 due to rising mortgage rates, growing home prices and tight inventory.

Meanwhile, the new home sales report for December scheduled to be released on Jan. 25 will likely be postponed due to the government shutdown.

The first-time buyer share of existing home sales slightly declined to 32% in December from 33% the previous month. The December inventory decreased to 1.55 million units from 1.74 million units in November. At the current sales rate, the December unsold inventory represents a 3.7-month supply, down from a 3.9-month supply last month.

Homes stayed on the market for 46 days in December, up from 42 days in November and 40 days a year ago. In December, 39% of existing homes sold were on the market for less than a month.

The December median sales price for existing homes was $253,600, up 2.9% from a year ago. This marks the 82nd consecutive month of year-over-year increases. The December median condominium/co-op price of $240,600 was up 2.3% from a year ago.

NAHB economist Fan-Yu-Kuo provides more analysis in this Eye on Housing blog post.

Have you ever wondered if the impact fees your company is paying to various jurisdictions are going toward their intended purpose? Interestingly, they often are not.

Over the last 30 years, the Development Planning & Financing Group Inc. (DPFG) has been working with NAHB, HBAs and various home building companies in reviewing, critiquing, and determining the overall fairness and equity of the impact fees proposed by associated jurisdictions.

Over the last seven years, DPFG has conducted a number of in-depth audits of municipalities’ fee programs and we can now conclude greater transparency and oversight are needed related to the expenditure of fees.

Common misuses of fees

Most jurisdictions attempt to utilize fees for the intended purposes. There does, however, appear to be an almost uniform disconnect between the departments that prepare the fee study (e.g., manager, public works and finance departments) and the departments and/or personnel that collect and expend impact fees (accounting and public works departments).

In states with no fee audit requirement, DPFG’s audit findings have found the misuse of impact fees in four general areas:

• Using fees to correct existing deficiencies. While reviewing a fee study, it was noted that federal and state authorities had cited a jurisdiction for not having sufficient fire stations. The jurisdiction was required by the authorities to use its own non-impact fee funds to construct a second fire station to adequately serve its existing population. During the peer review of the impact fee accounts, we discovered that the jurisdiction expended approximately $935,000 of impact fees it was collecting for fire stations 3, 4, and 5 for the construction of the second fire station.
• Using specific impact fees to fund non-authorized capital facilities. During a review of a jurisdiction’s water impact fee accounts, for which separate impact fees were being collected for water capacity and water distribution, DPFG uncovered that the jurisdiction had utilized $4.1 million collected for water distribution to finance water capacity projects. The same jurisdiction also expended approximately $2.2 million in impact fees specifically for sewage collection facilities to fund the wastewater treatment plant, for which it was collecting a separate fee.
• Using fees for the payment of non-capital assets. A jurisdiction funded more than $2.1 million in public works and park department salaries, payroll taxes, health insurance, vacation pay, overtime pay, and even retirement benefits. Fees were used to fund departmental office supplies, cellular service, travel, and meals.
• Using fees for the repair and maintenance of existing facilities. In another jurisdiction, approximately $218,000 in funds were used to repair and replace existing park facilities rather than to construct new park facilities. The city has agreed to replenish the funds taken from the fee accounts through their general fund.

Ensuring proper expenditure of fees

Most state impact fee statutes are vague and open to interpretation, which often leads to misuse.

A possible solution is enacting impact-fee enabling legislation that outlines specific rules and guidelines for the estimation, collection, and expenditure of impact fees. This legislation should also provide a means for independent third parties knowledgeable in impact fees, public infrastructure, accounting and finance to audit the jurisdiction’s expenditure of impact fees.

As a starting point, industry associations may want to consider a broader effort to implement more specific legislation related to the estimation, collection, and expenditure of impact fees. By providing more detailed guidelines and implementing regular peer reviews of fee accounts, both the public and private sectors can feel more confident that jurisdictions are utilizing impact fees for their intended purpose, which is to provide necessary infrastructure for new growth.

Carter T. Froelich, CPA, is managing principal of the Southwest and Mountain Regions of Development Planning & Financing Group Inc. This post was adapted from an article in the Fall 2018 issue of Best in American Living. Read the full article here.