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Housing Starts: Spring May Bring Tight Supply Conditions

  • Here is a look at the latest housing starts for November 2015.
  • New home construction rose significantly in the latest month and is on track for most activity since 2007. Still, significantly more construction is needed to relieve the housing shortage that is developing and will become very visible once the spring home buying season returns.
  • Numerically, housing starts reached 1.17 million in November, an increase of 10.5 percent from the prior month and up 16.5 percent from 12 months ago. Multifamily activity continues to be solid at 405,000 units at an annualized rate and single-family construction at 768,000 broke to its highest mark since early 2008.
  • The gains are partly reflecting a low base comparison point. Housing starts, particularly of single-family units, have been very sluggish for multiple years. Overall housing starts need to reach 1.5 million just to reach the historical annual average. Considering that there is an inventory shortage of homes for sale and historically low apartment vacancy rates, a figure of 1.7 million may be needed to fully return to balanced market. This year, even with good gains in November, looks to hit only 1.1 million new housing units. That’s grossly inadequate.
  • Homebuilders do not have many problems finding a buyer. It is taking less than 3 months to find a buyer. Yet they are not aggressively building. The reasons are twofold. First, many small mom-and-pop builders are having difficulty obtaining construction loans from local lenders because of new financial regulations. Second, even if a construction loan can be found, finding skilled construction workers have been very difficult.
  • REALTORS® in many markets across the country should brace for tight supply conditions once the spring buying season returns. The affordability issue will heighten as a result.

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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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