The Latest on Housing Starts

Summary of the Latest Data

  • Despite the housing inventory shortage, homebuilders are not building new homes in needed quantities.  New home construction activity remained depressed in February, below one year ago levels.  The weather cannot be the sole reason.  The West region with decent temperatures also experienced a decline.
  • On a positive note, the number of housing permits rose, indicating that new home construction will be rising a bit in the upcoming months.

Impact on the Market

  • The housing shortage in many markets is likely to persist.  Homebuilders need to increase production by at least 50 percent from current levels in order to meet the demand for newly constructed homes.  The latest permit increases are still insufficient.
  • Low new home construction means fewer future existing home inventories.
  • There is little chance of home price declines when there is a housing shortage.  Rents will continue to rise.

Data Details

  • Housing starts in February of 907,000 (seasonally adjusted annualized rate) is below the average monthly figure of last year and below that of this time last year.  The 50-year average is right around 1.5 million a year.
  • Broadly speaking, the multifamily housing starts are back to where they need to be with 324,000 in the latest month.  But the single-family housing starts of 583,000 remain very depressed compared to the historical norms.  The trend reflects a surge in rental population in recent years and no increase in homeowner population.
  • NAR projects 1.15 million housing starts in 2014 and then rising to 1.4 million in 2015.

As an Aside…

  • Texas has little to no regulation in regards to home building.  Therefore, when housing demand rises, builders construct more homes.  The supply response is the key reason why home prices are affordable in Texas.  By contrast, the difficulty of obtaining a housing permit in San Francisco has led to a housing shortage and very high home prices.  But now even Texas is sluggish in building new homes, clearly implying that the excessive federal banking regulation is hindering access to construction loans for small homebuilders.  Big publicly listed companies like Lennar and KB Homes can get money from Wall Street and therefore are not hampered like the small home builders.
  • In addition to their approach to home building, Texans are said to be very independent-minded.  Many do two pledges of allegiance: to the American flag and to the Texan flag.  The land once belonged to Mexico, but Texans declared independence and then asked America to protect them.  Later, they overwhelmingly voted to be part of the U.S.

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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