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Fed on housing’s yo-yo: From ‘strong’ to ‘mixed’ to ‘brisk’

The yo-yo effect in the state’s housing market this year has been well chronicled by the Federal Reserve’s Beige Book, the anecdotal economic diary of the central bank.

The eight-times-a-year report summarizes local business conditions with reports from the Fed’s 12 regional divisions. The commentary, filled with impressions of local contacts, gives the D.C. policymakers a more Main Street view of the economy.

The slice of the report done by the Federal Reserve Bank of San Francisco shows the Fed’s thinking about the economy in nine Western states — including California.

Reading the 2020 commentary about the West’s housing markets gives you a feel for how up-and-down residential real estate acted as the coronavirus pandemic throttled the economy: From January’s “expanded strongly” to May’s “mixed but grew” and “highly uncertain” to September’s “brisk pace” to the year’s seventh and latest Beige Book saying “increased demand” in October.

Yet that last report wasn’t all rosy: “Rents in metropolitan areas dipped. Contacts expressed some concern over the undersupply of affordable housing.”

Take a few minutes and read the Fed’s residential real estate commentary for the West as it played out so far this year …

January 15

“Residential real estate activity expanded strongly. Reports from across the district noted that buyer demand remained robust amid low inventories for both single-family and multi-family housing. Contacts attributed the brisker demand to the low-interest-rate environment, despite a recent tick up in mortgage rates in some areas.

“Construction activity was up but somewhat restrained by labor shortages. Some suppliers noticed elevated costs for building materials due to high demand, but a few others noted that materials’ availability had improved.

“Contacts highlighted that home prices grew further, noting that affordability concerns have led some buyers to look for homes outside main urban areas. A financier from Southern California mentioned slower demand for high-end properties, noting that their development was constrained by tighter financing options and longer processing times.

“A multi-family housing provider in Nevada added that tenant demand for add-ons such as concierge and parcel services had also increased notably, even as rents increased.”

March 4

“Residential real estate activity grew modestly. Contacts from most areas within the district continued to report brisk buyer demand, low inventories for single-family homes, and high occupancy rates for multi-family units.

“Construction activity increased on the back of agreeable weather, but at a somewhat slower pace than the previous reporting period due to labor and land costs constraints.

“A financier from the Pacific Northwest noted that construction activity in rural areas also expanded recently. A few other areas within the district reported less robust sales and flat construction activity. Home prices accelerated in many regions, intensifying affordability concerns.”

April 15

“Residential real estate activity was mixed but grew slightly on balance. Contacts reported that most in-progress homebuilding continued throughout March, while the future status of residential construction vis-à-vis nonessential business closures was unclear.

“In most states, construction is expected to continue, though the demand outlook for new residential projects is highly uncertain.

“Reports also painted a mixed picture of sales activity in the district. Buyer response to the COVID-19 outbreak varied by local market as did local government restrictions on selling. Some reports for Idaho, Oregon, California, and Washington indicated that sales activity and prices were stable around recent levels. Other reports for Idaho and California indicated that sales fell severely in the second half of March.

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May 27

“Residential construction activity was mixed on net. After a temporary halt in construction, residential projects restarted in some areas in late April or early May, depending on local social distancing relaxation schedules.

“Overall, home sales slowed dramatically and inventories decreased as sellers held back amid in-person home tour restrictions. Nonetheless, a few local markets in California and Idaho continued to see strong home sales, especially within higher price ranges.

“Uncertainty around future construction and sales remained high. A contact in Southern California mentioned that residential rent prices were flat or even down slightly as tenants sought and gained payment concessions.”

July 15

“Residential construction activity increased moderately. In most areas, contacts reported solid permitting and building activity.

“In Seattle, residential permits were slightly higher than in the same period last year, and a Northern California contact noted that permitting activity was picking up, reflecting a return to construction after some stoppages in March and April.

“Overall, home sales picked up noticeably while inventories declined, putting some upward pressure on home prices.

“In Oregon, a large backlog of homeowners wanting to list their home for sale indicated that inventory in some areas may rise in coming months. In Idaho and Eastern Washington, observers saw early evidence of buyers moving from higher-cost coastal markets after starting permanent teleworking. A Northern California contact reported that a number of renters were unable to pay rent, while some homeowners were delinquent on mortgage payments.”

September 2

“Residential construction activity increased at a brisk pace, supported by the low-interest-rate environment. Contacts reported increased demand for new single and multifamily homes in most areas, which helped boost permit issuance across the district.

“Existing inventories remained low, and prices climbed further as many buyers placed competing bids on desired homes. Workers continued to seek opportunities to move away from major metropolitan areas as some jobs become more conducive to teleworking.

“In the Mountain West and Pacific Northwest, homebuilders reported having trouble keeping up with demand and pointed to the increasing costs of building materials and supply chain disruptions as their main constraints.

“Some parts of California saw less building activity and delayed permit issuance, as many local government offices remained closed.”

October 21

“Residential construction activity increased further, supported by a low-interest-rate environment. Contacts reported increased demand for new and existing homes throughout the district, which kept inventories low and construction permitting high.

“Home prices continued to climb at double-digit rates, partially fed by increased demand for suburban homes in the current telework environment. Rents in metropolitan areas dipped.

“Contacts expressed some concern over the undersupply of affordable housing, especially after some regions suffered from wildfire-led destruction. Homebuilders in the Mountain West and Pacific Northwest reported backlogged projects, increased costs of building materials, and finalized sales well in advance of project completion.”

PS: The last Beige Book of the year is released Dec. 2.

Source: Orange County Register

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