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The Latest on 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 the latest on housing starts data.

  • Some relief to inventory shortage is in the offing.  New home construction rose sizably in the latest data.  More new supply is still needed, however.
  • Housing starts rose to 1.09 million units (annualized pace) in November, the strongest activity in nearly six years.  Single-family units are up 26 percent from one year ago while multifamily units are up by 39 percent.
  • There is pent-up household formation that is ready to burst out on a sustained basis, provided the economy continues to create jobs.  Both rental housing demand and owner-occupied housing demand will be rising in the upcoming years.  Based on past experience, about 1.5 million housing starts are needed each year.  So, today’s figure though encouraging is still insufficient.
  • Large publicly listed companies like Lennar and Toll Brothers are building after raising capital on Wall Street.  But many smaller mom-and-pop homebuilders are having difficulty obtaining construction loans from local banks because of increased financial regulatory burdens.  As a result the big guys are taking advantage of the fact that the smaller homebuilders cannot access capital.  An unintended consequence from the gigantic Dodd-Frank financial market reform?
  • Home prices have been rising too fast and are now beginning to hurt affordability.  One clear way to tame the home price growth is to have more supply, which in turn will help lead to a more sustained housing recovery.  A chance of an oversupply is virtually zero because shadow inventory has also been falling sharply.  The tapping of construction loans therefore is critical to bring additional new supply and help the local small-time homebuilders.

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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