About
Real Estate Research provided analysis of topical research and current issues in the fields of housing and real estate economics. Authors for the blog included the Atlanta Fed's Jessica Dill, Kristopher Gerardi, Carl Hudson, and analysts, as well as the Boston Fed's Christopher Foote and Paul Willen.
In December 2020, content from Real Estate Research became part of Policy Hub. Future articles will be released in Policy Hub: Macroblog.
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April 17, 2020
Southeast Housing Market and COVID-19
Considering the devastating effects the COVID-19 pandemic is having on the economic landscape, we can think of no better time to revive our Real Estate Research blog. Atlanta Fed staff, often in partnership with researchers at other Reserve Banks, are continually working to track and assess COVID-19-related developments as they unfold in the housing and mortgage markets.
With the relaunch of this blog, we intend to regularly publish posts, like this one, with our commentary, observations on recent data releases and survey results, analysis of recently published academic research, findings from working papers we find relevant and interesting, and takeaways from conferences and guest speakers when those events become possible again. We aim to foster dialogue on topical research and current issues in the field with each post we publish and look forward to your active participation and feedback.
Taking the pulse of the housing market
To gauge the impact COVID-19 is having on housing in the Sixth District, we redeployed our Southeast Housing Market Poll from March 26 to April 2 to existing homebuilder and residential sales agent contacts. To get a reference point for comparison, the poll included a combination of routine questions we've posed in the past. It also included special questions to gather more detailed insights on the unfolding situation. This post highlights the results of the poll.
Two-thirds of Southeast builder respondents indicated that home sales came in below their plan for March 2020 and were down slightly from the year-ago level. The majority of broker respondents, on the other hand, said home sales were in line with their plan for the period and were, on balance, flat from the year-earlier level.
Builders and brokers both reported declining buyer traffic relative to one year earlier. As the results of the special questions will emphasize (see below), buyer traffic appears to be the dimension of business that COVID-19 has most adversely affected through March.
The majority of builders reported that inventory levels remained flat from the year-ago level, while brokers said inventory levels were down. Most brokers and builders reported that home prices either held steady or were up slightly in March. Builders and brokers also indicated that the amount of available mortgage credit was sufficient to meet demand.
Just over half of southeastern builders indicated that construction activity during March 2020 fell short of their plan for the period, with the majority reporting that construction activity was flat to down slightly compared to the year-ago level.
Most builders said material prices had increased from one year earlier, but were flat relative to the month-earlier level. More than four-fifths reported some degree of upward pressure on labor costs, and half of pointed to modest increases in labor costs of just 1–3 percent from the year-ago level. The majority of builders indicated that the amount of construction and development finance available was sufficient to meet demand.
With regard to the outlook, all Southeast broker respondents said they expect home sales activity to decline over the next three months. Most builders expect construction activity over the next three months to slow considerably as well.
Results from special questions on COVID-19
Consistent with results from surveys fielded by the National Association of Realtors (like this one) and the National Association of Home Builders (like this one), many Sixth District brokers and builders reported that they had already felt the effects of COVID-19 on their business at the end of March 2020 (see the chart). Buyers' ability to secure financing was the aspect least affected across the Sixth District, followed by the amount buyers were willing to pay for the home. Buyer traffic appeared to be the most significant adverse impact thus far.
We posed the same set of special questions to brokers and builders, but this time asked them to look three months ahead and anticipate the impact of COVID-19 along the same dimensions. Perhaps not surprisingly, the majority of brokers and builders expect the adverse effects of COVID-19 to worsen over the next three months across all dimensions of their business, but especially as it relates to buyer traffic and the number of offers that come in.
We'll continue to keep an eye on the housing situation as it unfolds and report back periodically with updates. In the meantime, feel free to share observations from your local market or resources you are using to the track the situation in the comments section below.
This poll was conducted March 26 to April 2, 2020, and reflects activity in March 2020. Thirty-seven business contacts across the Sixth District participated in the poll: 19 homebuilders and 18 residential brokers.
By 
April 5, 2018
Update on Lot Availability and Construction Lending
"Location, location, location" is a truism associated with residential real estate. What we're hearing from our construction contacts could be another sort of truism: "Labor, lumber, lots." They are referring to the ongoing tight labor market in the construction trades, the skyrocketing price of lumber, and the difficulty of obtaining lots on which to build. While it's true that housing sector fundamentals—employment growth, household formation, tight inventory—continue to support an optimistic outlook, our industry contacts continue to report challenges regarding the supply chain. This post will focus on lots in the Southeast.
Data from MetroStudy indicate the supply of vacant developed lots in the Southeast has steadily declined since 2011 in absolute number and relative to housing starts (see the chart). While the current lot inventory appears similar to 2005 levels, there may be important differences. Anecdotal information indicates that lots are quite scarce, especially in desirable locations. That is, while the number of lots seems healthy, many of the lots developed from 2005 through 2007 were "bubble" lots—they have inferior locations and would not have been developed if not for the frothy environment of the time. When landing in Atlanta, for example, you can see scores of lots around the airport ready to go vertical, but being in the landing path of one of the world's busiest airports does not make the location exactly "prime."
So, the number of lots may be overstated, and the need to develop lots in better locations persists.
We heard of one possible roadblock from our business contacts. In the Atlanta Fed's most recent Construction and Real Estate Survey, the majority of builders continued to report that the amount of available credit for construction and development was insufficient to meet demand. The difficulty in obtaining bank loans, a traditional source of funding for small developers, has made it challenging for them to convert raw land to buildable lots.
Bank lending remains strong
Given the comments on the survey, it seems somewhat surprising that, according to bank call reports, construction lending remains the highest growth portfolio among banks headquartered in the Atlanta Fed's district (which encompasses Alabama, Florida, Georgia, and sections of Louisiana, Mississippi, and Tennessee). Exposures for construction have risen steadily over the past three years as optimism about the economy has increased (see the table).
In 2005, before the banking downturn, over 80 percent of the banks in the district were reporting construction loan growth year over year, with median growth rates exceeding 40 percent. From the time of the banking downturn through the early recovery, however, construction loan growth turned negative. Banks experienced significant losses on partially finished projects, making them hesitant to lend on other projects. Growth finally turned positive again in 2014. From 2015 to 2017, the percentage of banks reporting year-over-year growth in construction increased slightly, from 61 percent to 65 percent.
Still, the percentage of banks reporting growth in their residential construction portfolio has declined slightly while the overall growth rate of construction loans has dropped from 20 percent in 2014 to just over 13 percent as of December 31, 2017.
Looking deeper into the primary drivers of loan growth, we broke down total construction lending into two categories: Residential 1–4 family construction loans and Other loans, all land development, and other land.
Though the Other category includes all land development, it mostly includes only construction loans for nonresidential and multifamily properties. Loans for development of lots that will have one to four family houses built on them are routinely put in the Residential 1–4 family category of construction loans. What this means is that the data cannot tell us the amount of lending going to develop new lots.
What the data can tell us is that overall construction lending is growing, though at a measured pace and starting from a relatively low level. And anecdotes tell us that the growth is not coming from lot development loans, but, rather, commercial real estate projects and "vertical" residential construction—that is, the actual building of houses.
It is worthwhile noting that, as construction lending growth has progressed, construction as a percentage of capital has drifted towards the point such that the median level for all banks is approaching precrisis levels (see chart).
So while construction loan growth is strong, our industry contacts continue to tell us that not much of that money is going toward lot development. Recent Senate action may make regulatory capital constraints less of a concern, so the smaller community banks in the district may increase construction lending. However, given conversations with banking experts, it does not appear that banks' appetite for lot development loans has improved much since the crisis.
Lots likely will remain relatively scarce, and our contacts will continue their lament of "labor, lumber, lots."
Robert Canova, senior financial specialist, Supervision, Regulation, and Credit Division, and
Carl Hudson, director of the Center for Real Estate Analytics, both of the Atlanta Fed
April 5, 2018
Update on Lot Availability and Construction Lending
"Location, location, location" is a truism associated with residential real estate. What we're hearing from our construction contacts could be another sort of truism: "Labor, lumber, lots." They are referring to the ongoing tight labor market in the construction trades, the skyrocketing price of lumber, and the difficulty of obtaining lots on which to build. While it's true that housing sector fundamentals—employment growth, household formation, tight inventory—continue to support an optimistic outlook, our industry contacts continue to report challenges regarding the supply chain. This post will focus on lots in the Southeast.
Data from MetroStudy indicate the supply of vacant developed lots in the Southeast has steadily declined since 2011 in absolute number and relative to housing starts (see the chart). While the current lot inventory appears similar to 2005 levels, there may be important differences. Anecdotal information indicates that lots are quite scarce, especially in desirable locations. That is, while the number of lots seems healthy, many of the lots developed from 2005 through 2007 were "bubble" lots—they have inferior locations and would not have been developed if not for the frothy environment of the time. When landing in Atlanta, for example, you can see scores of lots around the airport ready to go vertical, but being in the landing path of one of the world's busiest airports does not make the location exactly "prime."
So, the number of lots may be overstated, and the need to develop lots in better locations persists.
We heard of one possible roadblock from our business contacts. In the Atlanta Fed's most recent Construction and Real Estate Survey, the majority of builders continued to report that the amount of available credit for construction and development was insufficient to meet demand. The difficulty in obtaining bank loans, a traditional source of funding for small developers, has made it challenging for them to convert raw land to buildable lots.
Bank lending remains strong
Given the comments on the survey, it seems somewhat surprising that, according to bank call reports, construction lending remains the highest growth portfolio among banks headquartered in the Atlanta Fed's district (which encompasses Alabama, Florida, Georgia, and sections of Louisiana, Mississippi, and Tennessee). Exposures for construction have risen steadily over the past three years as optimism about the economy has increased (see the table).
In 2005, before the banking downturn, over 80 percent of the banks in the district were reporting construction loan growth year over year, with median growth rates exceeding 40 percent. From the time of the banking downturn through the early recovery, however, construction loan growth turned negative. Banks experienced significant losses on partially finished projects, making them hesitant to lend on other projects. Growth finally turned positive again in 2014. From 2015 to 2017, the percentage of banks reporting year-over-year growth in construction increased slightly, from 61 percent to 65 percent.
Still, the percentage of banks reporting growth in their residential construction portfolio has declined slightly while the overall growth rate of construction loans has dropped from 20 percent in 2014 to just over 13 percent as of December 31, 2017.
Looking deeper into the primary drivers of loan growth, we broke down total construction lending into two categories: Residential 1–4 family construction loans and Other loans, all land development, and other land.
Though the Other category includes all land development, it mostly includes only construction loans for nonresidential and multifamily properties. Loans for development of lots that will have one to four family houses built on them are routinely put in the Residential 1–4 family category of construction loans. What this means is that the data cannot tell us the amount of lending going to develop new lots.
What the data can tell us is that overall construction lending is growing, though at a measured pace and starting from a relatively low level. And anecdotes tell us that the growth is not coming from lot development loans, but, rather, commercial real estate projects and "vertical" residential construction—that is, the actual building of houses.
It is worthwhile noting that, as construction lending growth has progressed, construction as a percentage of capital has drifted towards the point such that the median level for all banks is approaching precrisis levels (see chart).
So while construction loan growth is strong, our industry contacts continue to tell us that not much of that money is going toward lot development. Recent Senate action may make regulatory capital constraints less of a concern, so the smaller community banks in the district may increase construction lending. However, given conversations with banking experts, it does not appear that banks' appetite for lot development loans has improved much since the crisis.
Lots likely will remain relatively scarce, and our contacts will continue their lament of "labor, lumber, lots."
Robert Canova, senior financial specialist, Supervision, Regulation, and Credit Division, and
Carl Hudson, director of the Center for Real Estate Analytics, both of the Atlanta Fed
April 5, 2018
Update on Lot Availability and Construction Lending
"Location, location, location" is a truism associated with residential real estate. What we're hearing from our construction contacts could be another sort of truism: "Labor, lumber, lots." They are referring to the ongoing tight labor market in the construction trades, the skyrocketing price of lumber, and the difficulty of obtaining lots on which to build. While it's true that housing sector fundamentals—employment growth, household formation, tight inventory—continue to support an optimistic outlook, our industry contacts continue to report challenges regarding the supply chain. This post will focus on lots in the Southeast.
Data from MetroStudy indicate the supply of vacant developed lots in the Southeast has steadily declined since 2011 in absolute number and relative to housing starts (see the chart). While the current lot inventory appears similar to 2005 levels, there may be important differences. Anecdotal information indicates that lots are quite scarce, especially in desirable locations. That is, while the number of lots seems healthy, many of the lots developed from 2005 through 2007 were "bubble" lots—they have inferior locations and would not have been developed if not for the frothy environment of the time. When landing in Atlanta, for example, you can see scores of lots around the airport ready to go vertical, but being in the landing path of one of the world's busiest airports does not make the location exactly "prime."
So, the number of lots may be overstated, and the need to develop lots in better locations persists.
We heard of one possible roadblock from our business contacts. In the Atlanta Fed's most recent Construction and Real Estate Survey, the majority of builders continued to report that the amount of available credit for construction and development was insufficient to meet demand. The difficulty in obtaining bank loans, a traditional source of funding for small developers, has made it challenging for them to convert raw land to buildable lots.
Bank lending remains strong
Given the comments on the survey, it seems somewhat surprising that, according to bank call reports, construction lending remains the highest growth portfolio among banks headquartered in the Atlanta Fed's district (which encompasses Alabama, Florida, Georgia, and sections of Louisiana, Mississippi, and Tennessee). Exposures for construction have risen steadily over the past three years as optimism about the economy has increased (see the table).
In 2005, before the banking downturn, over 80 percent of the banks in the district were reporting construction loan growth year over year, with median growth rates exceeding 40 percent. From the time of the banking downturn through the early recovery, however, construction loan growth turned negative. Banks experienced significant losses on partially finished projects, making them hesitant to lend on other projects. Growth finally turned positive again in 2014. From 2015 to 2017, the percentage of banks reporting year-over-year growth in construction increased slightly, from 61 percent to 65 percent.
Still, the percentage of banks reporting growth in their residential construction portfolio has declined slightly while the overall growth rate of construction loans has dropped from 20 percent in 2014 to just over 13 percent as of December 31, 2017.
Looking deeper into the primary drivers of loan growth, we broke down total construction lending into two categories: Residential 1–4 family construction loans and Other loans, all land development, and other land.
Though the Other category includes all land development, it mostly includes only construction loans for nonresidential and multifamily properties. Loans for development of lots that will have one to four family houses built on them are routinely put in the Residential 1–4 family category of construction loans. What this means is that the data cannot tell us the amount of lending going to develop new lots.
What the data can tell us is that overall construction lending is growing, though at a measured pace and starting from a relatively low level. And anecdotes tell us that the growth is not coming from lot development loans, but, rather, commercial real estate projects and "vertical" residential construction—that is, the actual building of houses.
It is worthwhile noting that, as construction lending growth has progressed, construction as a percentage of capital has drifted towards the point such that the median level for all banks is approaching precrisis levels (see chart).
So while construction loan growth is strong, our industry contacts continue to tell us that not much of that money is going toward lot development. Recent Senate action may make regulatory capital constraints less of a concern, so the smaller community banks in the district may increase construction lending. However, given conversations with banking experts, it does not appear that banks' appetite for lot development loans has improved much since the crisis.
Lots likely will remain relatively scarce, and our contacts will continue their lament of "labor, lumber, lots."
Robert Canova, senior financial specialist, Supervision, Regulation, and Credit Division, and
Carl Hudson, director of the Center for Real Estate Analytics, both of the Atlanta Fed
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