Reason for home construction optimism but…

Green Escrow | New construction, housing

As mentioned last week (Home construction on the rise), the surge in new home construction in May caught many analysts by surprise. The limited number of properties in the resale market – before the pandemic it was 90%; as of April 2023 it is closer to 70% – has many home buyers looking to new construction.

While the signs are optimistic, analysts caution that the Feds announced intention to continue to raise interest rates could bring the building movement to a standstill.

Still, some economists are hopeful that a resurgence in residential construction could add 0.1% to the gross national product in the second quarter.

Home construction on the rise

Green Escrow Services | Adding value to home

In what is considered a bit of a surprise, Bloomberg is reporting that home construction in May rose by the most since May 2016 and applications to build also increased.

This rise in residential construction may help fuel economic growth, long a goal for the Fed.

Homebuilders are optimistic that, despite continued high mortgage rates, demand will increase as the cost of materials stabilizes and the supply-chain improves.

Singe-family home construction increases

Green Escrow | New Construction

In a bit of good news for the real estate industry – and those looking to purchase a home – single-family home construction increased in June, although not nearly enough to meet buyer demand. According to the U.S. Commerce Department, a drop in multi-family startups meant that total housing starts in June were 0.9% lower than a year ago.

Single-family construction increased by 3.5% in June to 847,000 units while multi-family startups dropped by 9.2% to 406,000 units.

Builders again cited labor and lot shortages as well as rising costs of building materials for the general shortfall.

Home construction up in August, but…

Green Escrow | New Construction

Yes, there is good news in real estate beside prices going up. According to the US Commerce Department housing starts increased by 9.2 percent in August, which translates to a seasonally-adjusted annual rate of 1.28 million units.

This, of course, is great news for the housing industry that is starving for inventory. However, the long-term prognosis isn’t so rosy. The high regulatory expense of new construction couple with ever-increasing costs for building materials, fueled largely by ongoing increases in tariffs probably means this gain in new construction will be short-lived.

this is made clear by the fact that new housing permits fell by 5.7 percent to 1.23 million in August. Moreover, single-family home permits dropped by by 6.1 percent while multifamily permits declined by 4.9 percent.

Another Factor in High Real Estate Prices

Real Estate Growth

Low inventory in the Bay Area has long been cited as a leading factor in the high price of homes for sale. Now a new report for the National Association of Home Builders assets that a tight labor supply in the home construction industry is also a major contributing factor.

While new home construction is now on the increase after a decade of decline, home builders have reported a serious shortage of workers and many – 68 percent – have had to raise home prices in order to pay higher wages.

According to the NAHB thousands of construction workers left the industry during the recession and many never returned. Likewise many foreign-born workers left the country and did not return.

Nation-wide the median price pf a three-bedroom, two bath family home has risen from &151,000 in April 2012 to $196,500 five years later – a 30 percent increase.

New Residential Construction Increasing

Green Escrow | New construction, housing

Bloomberg is reporting that New residential construction in the United States rose in April to the highest level in more than seven years. Housing starts surged 20.2 percent to 1.14 million annualized rate, the most since November 2007, from a 944,000 pace in March. More permits – a harbinger for future construction – were issued in April than at any time since June of 2008.

Analysts cited an improving labor market along with continued low mortgage costs as primary factors in the increase.

Of course, as the weather improves from a difficult winter, prospective buyers are driving up housing demand. Experts are confident the strong momentum will continue for the next several fiscal quarters.

Confidence Rising in Home Construction Industry

Green Escrow | New Construction

The National Association of Home Builders is reporting that their Housing Market Index was up four points from May to 49 in June which is one point short of the threshold of 50 considered to be “good” building conditions. The index had actually been above the 50 mark for the better part of 2013 before dropping sharply in February as the housing market declined. Analysts pointed out that a very tight inventory continues to drive up prices and many potential buyers are reacting with caution.

It’s important to note that housing construction is also important for the California job market in California as over 10 percent of all jobs created in the state since the start of 2013 have been in construction.

Home builders remain even optimistic about the upcoming six months, according to the Association.