Welcome to today’s real estate news roundup! In our latest updates, we explore the significant differences in building costs between California and Texas, shedding light on the challenges faced by homebuilders in the Golden State. We also delve into the NAHB/Wells Fargo Housing Market Index (HMI), a valuable tool for gauging builder sentiment and overall market conditions. Additionally, we provide insights into construction loans and how they work, offering a financing option for those considering building their dream home. Furthermore, we highlight the latest press release from the New Residential Construction sector, providing valuable data and information. Lastly, we showcase Pinner Construction, named ENR California’s 2024 Contractor of the Year, for their exceptional contributions to the region’s development. Read on to discover more about these exciting topics!
Costs $500k more to build house in California than Texas
Collectively, Texas, Florida and California account for nearly one-third of all new building permits in the U.S. in 2017. California is the most populous state in the nation, but it ranks No. 3 when it comes to new home construction.
“In Texas, they have one new home community under construction today for every 10,000 people. In Florida, they build one new home community for every 20,000 people. In California, the ratio is one community per 45,000 people. The result is that [home builders] who build and sell substantially the same house in Texas for $300,000 as they build in California for $800,000,” writes Pete Reeb, a principal at John Burns Real Estate Consulting, in a new analysis.
California is a unique — and difficult — market for three primary reasons, according to Reeb. It can take 10 years or more to get a master-planned community approved for development, according to John Burns Northern California expert Dean Wehrli.
“And it’s a BIG IF that you will even get approvals, while subdivisions that already have substantial conformance with local zoning laws can take three to five very expensive years,” adds Reeb.
Additionally, California’s development fees are exorbitant. Homebuilders have to pay $25,000 to $75,000 in fees for a single home to be built in some areas of the state. Of course, that expense pushes prices higher for homebuyers.
Finally, although California has plenty of land to construct on, there are many restrictions on where homebuilders can and can’t build. “Wide swaths are off limits or require environmental remediation per state laws,” said Reeb, citing CEQA, or the California Environmental Quality Act, which mandates state and local agencies to identify the environmental impacts of their actions and to mitigate any controllable impacts.
While California makes homebuilding both a lengthy and expensive process, Texas and Florida help facilitate the application and permitting process that home builders have to go through to ultimately break ground. This is important given how regulation and costs are hurdles that home builders often cite as reasons they can’t meet pent-up demand for housing and depressed levels of homes for sale.
“The housing shortage has resulted in home prices that are more than 2.4 times higher in California than in Texas and 2.2 times higher than in Florida,” writes Reeb. “Half of California homebuyers pay more than $537,900 per house.”
Texas is the leader when it comes to new homes permitted for construction, with 169,885 new permits in 2017, according to John Burns. The supply seems to match the demand, given Texas added 288,000 new jobs last year — more than any other state.
“Texas has a very efficient permitting process to accommodate the growth, resulting in lots of new housing getting built at very affordable prices,” notes Reeb.
Florida is the go-to destination for retirees — and that narrative isn’t changing anytime soon, said Reeb. The continued demand results in plentiful housing at reasonable prices. Last year, Florida approved 118,548 permits for new home construction.
Despite the challenges, California issued 113,320 permits to round out the top three markets in the U.S. for new home construction. “California builders have become the leaders in providing high-density housing solutions, selling new homes at the most attainable prices possible that also allow for a reasonable builder profit margin,” said Reeb.
NAHB/Wells Fargo Housing Market Index (HMI) | NAHB
The NAHB/Wells Fargo Housing Market Index (HMI) is designed to gauge and track the pulse of the single-family housing market. The HMI is based on a monthly survey of single-family builders who are asked to rate three specific conditions of the housing market:
- Present sales of new single-family homes
- Expected sales of single-family homes for the next six months
- Traffic of prospective buyers of new single-family homes
Each month, the HMI depicts overall builder sentiment toward housing market conditions on a scale ranging between 0 and 100. A higher reading (>50) is an indication that the majority of builders feel confident about the current and near-term outlook for housing. Lower readings signify less optimism among builders.
The HMI is a weighted average of the three components included in the monthly builder survey. A panel of builders rates the first two components on a scale of “good,” “fair” or “poor,” and the last component on a scale of “high to very high,” “average,” or “low to very low.” Each index is calculated by applying the respective formula: “(good – poor + 100)/2” or “(high/very high – low/very low + 100)/2”.
The panel of builders to whom the survey is sent is stratified by region of the country and size of the builder. The panel is refreshed annually to ensure optimal response rates and balanced participation from builders across the country.
Interest rates, employment rates, material costs, and inflationary pressures are factors that can impact the Housing Market Index. These factors influence builder confidence and the overall housing market conditions.
History shows that the HMI has consistently reflected periods of booms and busts in housing markets, as it was originally constructed to do. It has been a reliable indicator of housing market variables like starts.
What Are Construction Loans And How Do They Work? | Bankrate
If you can’t find the right home to buy, you might be thinking about building a house instead. Financing this type of project is somewhat different than borrowing funds to buy an existing property, however. Instead of a mortgage, you take on a construction loan (also known as a construction mortgage). Here’s what to know about construction loans.
Construction loans are loans that fund the building of a residential home, from the land purchase to the finished structure. Common types are a standalone construction loan, which only finances the building phase, and a construction-to-permanent loan, which converts into a mortgage once the construction is done.
You can use a construction loan to cover costs such as contractor fees, labor, permits, and even the purchase of the land or property lot itself. However, construction loans do not include design costs.
The initial term on a construction loan generally lasts a year or less, during which time you must finish the project. The lender will release funds at various phases of the project based on a construction timeline, detailed plans, and a realistic budget.
Construction loans and mortgages have a few main differences. With a construction-to-permanent loan, once the house is complete, the loan morphs into a traditional mortgage. During the construction-loan phase, you’re only responsible for interest payments on the money drawn. Different construction loan types are available to suit various financial needs.
Bankrate provides more information on construction loans and how they work.
New Residential Construction Press Release
For data inquiries, you can contact the Economic Indicators Division, Residential Construction Branch at 301-763-5160 or eid.rcb.customer.service@census.gov. For media inquiries, reach out to the Public Information Office at 301-763-3030 or pio@census.gov. Stay updated by subscribing to email updates.
California Views | Engineering News-Record
Pinner Construction, based in Anaheim, has established itself as a reputable company in Southern California, known for taking on high-quality projects that contribute to the improvement of local communities. The company specializes in various public market sectors, including civic, educational, and public safety facilities.
Pinner Construction has been recognized as ENR California’s 2024 Contractor of the Year. Despite the challenges posed by the COVID-19 pandemic, the company has remained adaptable by utilizing alternative delivery methods and building a strong team of contractors.
Last year, the firm achieved revenue of over $182 million, marking a nearly 10% increase from its pre-pandemic performance. Pinner Construction has been involved in several significant projects, contributing to the development of the region.
In addition to their commitment to quality construction, Pinner Construction also prioritizes giving back to the community. They have partnered with Small Business and Disabled Veteran Enterprises, providing job opportunities and subcontracting opportunities to local residents and businesses.
To learn more about Pinner Construction and their achievements in the region, read the August issue of ENR California.