Key takeaways:
- A number of converging factors have led to a white-hot housing market, which could have been even stronger if not for material and labor shortages;
- Most mortgage origination comes from households with top credit scores, unlike the questionable loans of the subprime era;
- Household homeowner equity is at an all-time high of nearly $275,000, helping to fuel premium K&B remodels.
By Robert Isler
Findings from NKBA’s 2021 Kitchen & Bath Market Outlook October update help shed new perspective on both the extent and sources of the white-hot market — and why it isn’t even stronger.
In this particular perfect storm, pent-up demand following the onset of COVID-19, a steep rise in savings combined with record home-price appreciation, and geographic migration due to both the fear of large, crowded metros and the dawn of a new era in working from home, has builders scrambling to keep pace. Shortages in both materials and labor are not helping. Below are some of the results of the exclusive new research.
Although John Burns Real Estate Consulting is calling for a substantial 17% full-year increase in single-family residential starts, that number could have been even higher, were it not for a shortage of available communities in which to build. In fact, only one in three new home communities has any finished new housing at all that’s available for sale.
Household homeowner equity has hit an all-time high, fueling upscale K&B remodels.
Many builders are expressing frustration, as they view the situation as money being left on the table. One of them made the simple observation, “We could sell more if we had the lots available.”
Others were more expansive. “The build cycle has increased by over 25% in the past year, with the biggest impacts coming in the past four months. This is primarily due to material shortages, which stall production from moving to the next milestone. Labor has been an issue more recently. All of these factors have moved the production cycle to the longest we have seen in many years.”
Long production cycles carry additional risks, as one builder noted. “We continue to sell whatever homes we put on the market, but are slowing down what we put up for sale because we are getting too far out and are concerned about price exposure and product availability.”
So strong is the demand, that one builder has resorted to an auction-like system. “We are not selling anything until it is completed, and then we offer a five-day ‘best and highest opportunity’ to a list of potential buyers.”
Yes, there is a rush to buy, but unlike the subprime mortgage days over a decade ago — that spurred the 2007-2009 Great Recession — when many potential owners were on shaky ground, today most mortgage origination comes from top credit-score households.
Additionally, sharp home appreciation across all levels of housing have made buyers more confident to remodel, with many going the premium route. That’s not difficult to understand, given that homeowner equity per owned household is at an all-time high, providing a strong pool of funds for such aspirational remodels. Inflation-adjusted, it stands at just below $275,000 — more than double the $125,000 less than a decade ago.
As for home appreciation, it has been enjoyed across the spectrum. Specifically, low-end homes have appreciated by 14% to an average price of $171,870, and low-medium have risen 16% to $280,566. Owners of higher-end homes have benefitted the most, however, with medium-high value houses up a substantial 27% to $464,898, and high-end increasing by 25% to $1,320,210.