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The number of new homes completed last year was about 15% higher than the number in 2012
The number of new homes completed last year was about 15% higher than the number in 2012

Six Takeaways from the Epic HUD/Census Report on Home Building

JUN 13, 2014 11:26am ET
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The Census Bureau/Department of Housing and Urban Development annual report on home building is always interesting. Not everyone, though, has the time to scan its more than 600 pages of tables. And there's no summary or text at all. This is a massive data dump in need of sifting, but National Mortgage News isn't afraid of diving in.

Among the revelations: A large number of single-family homes built last year weren't sold.

 Plenty of New Home Inventory

Southern states saw the most homes built and sold (by a wide margin), and the homes with the most square feet completed. Multifamily units built tended to be on the smaller side, while single-family units kept getting bigger. Cash sales remain higher than they were before the recession.

Some of the tidbits are truly bizarre. You would think Midwestern homes would naturally be built with fireplaces more often than homes in the warmer Southern states. Despite the difference between a Chicago winter and one spent in Key West, the percentages of homes with fireplaces in the two regions were dead even.

Here are a few of the more important takeaways from NMN's analysis of the 2013 report:

Plenty of inventory. At first blush, the first table may seem unremarkable, as it shows that an overwhelming percentage (more than 90%) of single-family homes built last year had air conditioners installed in them. But it also gives the total number of units completed, 569,000. Navigating all the way to the back of the "2013 Characteristics of New Housing" report, there is data on the presence of air conditioning in single-family units sold in 2013.

So, air conditioning aside, by comparing the totals of units completed (569,000) with units sold (429,000), that indicates a full quarter of the units built last year were not sold last year. (Of course, many more of these have been sold in the first half of this year.)

That 569,000 number is up about 15% from 2012's total of 483,000, and even more from 2011's 447,000, which is the lowest number completed since the beginning of the recession. So, homebuilding is making a comeback. But it is still down by more than half from 2006's 1.7 million.

More New Homes Built in ' 13

The South was the dominant region for units completed last year, at 296,000. That's more than twice the 129,000 completed in the West. The stragglers were the Midwest at 96,000 and the Northeast at 48,000. Dixie also had the most homes sold, at 233,000.

A nation of conformers. Sale prices on the 429,000 new units sold last year skewed decisively toward conforming mortgages. A total of 79% of units sold for $400,000 or less (the conforming loan limit currently is $417,000). If you assume everyone makes at least a 20% downpayment (called for by the agencies, but many who don't put up that amount buy mortgage insurance instead), taking the top sales price up to $500,000 for conforming borrowers, jumbo share drops to 12%.

Most high-end area of the country? If you guessed the West, with the huge California market, you'd be wrong. It's the Northeast, where 11% of sales were for $750,000 and above. In the West, it was just 6%.

Most affordable? The Midwest had 84% of sales at $400,000 and below, closely followed by the South at 83%. Interestingly, these were the only two regions that had measurable amounts of sales for homes costing less than $125,000. The West was more expensive at 70%, but the Northeast seems to have been the most expensive, with just 55% of sales at less than $400,000.

Supersize it. It appears some lenders and builders haven't gotten the memo yet about the end of the McMansion era. The gathering consensus is that crushing burdens of school debt are preventing millennials from qualifying for mortgages, or, if they do qualify, are curbing the size of the homes they can buy. But a look at median and average square feet, and numbers of bedrooms, doesn't find much evidence of this trend.

The median and average square feet of single-family homes completed increased last year versus 2012, according to the report. Median square feet was up to 2,384 from 2,306, and average square feet bumped up to 2,598 from 2,505. Both of these categories were at record highs in 2013. Fully 90% of units completed last year had three or more bedrooms and just 10% had two bedrooms or fewer. Single-family Southern homes completed last year were the biggest in the country in median (2,469) and average (2,689) square feet.

Cash is king. Sales for cash continued at a high level in 2013, with 10% of financing coming in the form of greenbacks. Since 2009, cash deals have averaged just above 10%, while for the decade of 1999 to 2008 they were below 10%.

Most of the financing came through conventional loans (Freddie Mac/Fannie Mae, plus jumbos) at 61%, followed by Federal Housing Administration loans (12%) and Department of Veterans Affairs mortgages (6%).

The conventional volume was down from 2012, when it was 66%, while FHA volume fell 300 basis points from 15% in 2012. Conventional loans accounted for as much as 88% of the market in 2007.

Multifamily still multiplying. As single-family struggles, multifamily should benefit, and the numbers do show a bump up for 2013. A total of 195,000 units were completed (in 10,000 buildings), up smartly from 166,000 the year before but still anemic compared to the pre-recession years, when multifamily completions peaked at 325,000 in 2006.

The vast majority of these units were conventional multifamily, with just 2% townhomes. Townhomes peaked at 12% of the market in 2003.

Smaller units dominated the multifamily category. Sixty-nine per cent of all units were in the smallest two categories, at less than 1,200 square feet. In contrast, only 4% of new units were over 1,800 square feet. Average and median square feet were down for 2013.

Some like it hot. Very nearly half (49%) of new single-family homes completed last year had no fireplaces. Forty-five percent of units had one fireplace, and 6% had two.

Logic would dictate more of these would be in the colder Midwest, versus the warmer Southern states. Actually, no. Fifty per cent of Southern new homes had fireplaces, matching the percentage in the Midwest.

Some multifamily buildings completed last year had fireplaces: a surprising 13%, or one out of eight of these buildings. This ranged from 28% in the cold Northeast to just 4% of apartment buildings completed in the South.

As for the other 500 tables in the report, they will have to wait until next time.

Mark Fogarty, Editor at Large at National Mortgage News, writes analysis and commentary based on his 30 years covering the mortgage industry.

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