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 eased a bit in July, but still remains comfortably higher compared to last year’s activity.  Total housing starts of 746,000 in July are 21.5 percent above last July’s figure.
• Multifamily units are experiencing a faster recovery with a31 percent gain from one year ago, while single-family units are up by 17 percent.  A strong rise in rental household demand combined with tight mortgage credit is leading to faster construction of apartment buildings.
• Even with the increases in the past year, housing starts remain woefully below the long-term average of 1.5 million new units that are built each year.  Today’s data is only half that.  It looks increasingly that America could encounter a housing shortage in the next year or two if housing starts do not ramp up significantly.  Already, the continuing declines in apartment vacancy rates and the steady fall in the inventory of homes for sale are hinting that there are fewer and fewer housing units to go around in a country that is adding about 3 million more people each year.
• The inventory of newly constructed homes is at a 50-year-low and the median price of new homes has been rising.
• Many small local homebuilders are very eager to break ground and build homes, but are constrained by the lack of construction loans.  Only the large homebuilders, who have the ability to tap Wall Street funds, are the ones getting into action.  The homebuilding industry, just as in the banking industry, is transforming into an unhealthy development of large homebuilders getting larger and smaller ones getting shut out.