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Housing Starts

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses housing starts.

  • Housing starts fell nearly 5% in May. The decline was due to a sudden pullback on multifamily housing starts, which is very surprising given strong apartment demand and rising rent trends.
  • Single-family housing starts notched up, but not enough to offset the decline in multifamily starts. Despite the one month decline (inescapable volatile nature of housing data, irrespective of the long-term trend) multifamily starts are up 35% from one year ago while single-family starts are up 26%.
  • Historically, housing starts tend to roar back very strongly after touching bottom (note for example conditions in 1982 and in 1991). As can be seen in the below graph, housing starts recovery in this cycle has been very lackluster. After bottoming out in 2009, the recovery has been quite modest. What is more surprising is that the current inventory of newly constructed homes is at 50-year lows, yet housing starts remain sluggish.
  • One development to watch is that large builders are now able to tap capital via Wall Street. Small-size homebuilders are more reliant on local banks and construction loans have been very difficult to obtain. So we have a situation where big builders are getting bigger while small builders are essentially getting shut out.
  • Housing starts are expected to show around a 30% gain this year and next year. These increases will be one key source of economic growth and job creation in the construction industry. Interestingly, even with these robust increases, housing starts will only reach one million in 2013, still well short of the historical average of 1.5 million new housing units each year. The lack of new supply, therefore, will be the basis for continuing home price increases in the upcoming years. In other words, most home buyers this year will experience immediate price appreciation and not price depreciation.

Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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