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.

• New home construction activity continues to improve with good gains in June.  Housing starts rose 7% to now 760,000 (annualized rate).  This time last year, the figure was 615,000. Both single-family units and multifamily units made gains.
• Though the bottoming in housing starts occurred in 2009 with only 550,000 housing starts, the pace of recovery since that time has been very sluggish.  Sharper gains are occurring this year, already up 25% year-to-date, and even bigger gains could occur next year because the inventory levels have fallen to very low levels.
• Based on the historical average of the U.S. population growing by about 3 million people each year, housing starts have been 1.5 million a year on average.  However, the deep downturn after the bubble years has resulted in 1.5 million housing construction over a long 3-year time span from 2009 to 2011.    There is clearly pent-up demand ready to hit the market.  Do not be surprised if housing starts rise by 50 percent in 2013.  Note that even with such a large percentage increase, housing starts will only be 1.15 million units, still below the normal 1.5 million historical average.  If housing starts rise at a slower pace, then home prices will perk up at a faster rate.
• One unwelcome development in the nascent recovery in homebuilding is that many of the smaller builders have been shut out from participating.  Construction loans are very hard to obtain.  As a result the big homebuilders with the ability to tap Wall Street funds and issue bonds are the ones taking advantage of recovery over the smaller players (just like big banks getting bigger while smaller banks experiencing difficult conditions).  Less competition will mean somewhat higher home prices for consumers to buy a newly constructed home.