Housing affordability issues plaguing the U.S. have reached recent highs this year. In July, reports surfaced that purchasing a home in the U.S. is less affordable than it has been in decades. Not only have home prices skyrocketed, but average wage earners are needing to spend more than 30 percent of their income (historical average is 29 percent) to buy a median-priced home, indicating wage growth has fallen behind home appreciation.
If rising home prices weren’t enough, mortgage rates have increased substantially in 2018 – in fact October and November saw 30-year fixed-rate average nearing 5 percent for the first time since 2011 – and labor costs continue rising fueled by recent natural disasters and tariffs. The convergence of these factors has led to new trends in the housing market as homeowners look to overcome affordability concerns.
More homeowners are remodeling their properties
Remodeling growth has increased over the last couple of years and 2018 was no exception. Especially as homes became less affordable to the average wage earner, homeowner hesitance around re-entering the housing market turned into a specific focus on remodeling, which BuildFax defines as additions, renovations, and alterations.
In the last decade, residential remodeling increased 58.9 percent as of June 2018. Not only has the rate of remodels increased, but also recent BuildFax research found that the percentage of expensive remodeling projects rose over the last few years. Homeowners are spending more money on premium-impacting remodeling projects, in many cases biding their time until it’s feasible to upgrade to a new property. While it’s yet to be seen if this trend will continue into the new year, remodeling activity has made a lasting impact on the health of the existing housing market in 2018.
New cities are seeing growth in the housing sector
Big metropolitan areas like San Francisco and New York City are seeing astronomical growth in home prices, locking out prospective homeowners who are unable to pay top dollar. Instead, in 2018, there was movement away from large metropolises and into growing cities with less expensive homes and more affordable living.
A report from the Joint Center for Housing Studies (JCHS), a Harvard University initiative, found that Kansas City, San Antonio, Tucson, Pittsburgh and Austin were expected to demonstrate particularly strong growth in 2018. In contrast, projected growth for more popular cities, like San Diego and Portland, is more subdued. The JCHS used two decades of historical residential remodeling permits to build these projections, leveraging BuildFax data among other sources, as a benchmark to develop their model.
Accessory dwelling units are gaining popularity
Regions with increasing affordability concerns have also seen a steep rise in the construction of accessory dwelling units (ADUs), also known as granny flats. These independent units, added on to a house or in the yard of someone’s property, have been traditionally used for an adult child or elder parent. In recent years though, the rise of ADUs has allowed for renters to find small, affordable places to live and provide homeowners with supplemental income. BuildFax found that California, for instance, demonstrated sustained ADU construction growth at more than 50 percent year over year in the last few years.
Oregon and Washington also saw high ADU growth in 2018. Oregon experienced year-over-year growth at 25.91 percent year to date as of October. Meanwhile Washington ADU construction grew 21.99 percent in that same time period.
Affordability was a clear theme driving 2018 housing trends and changes in land use. While these shifts in housing activity were notable, and may have been early indicators of impacts on the greater economy, it is yet to be seen if these behaviors will continue into 2019.