Good News for New Home Starts Is Not Good Enough

Written by: Alan Edwards

The U.S. Census Bureau and the Department of Housing and Urban Development reported Thursday, January 17, 2013 that December, 2012 marked the end of the best year for new home starts since 2008.

For the last month of the year more home construction starts were recorded than forecasted by economists. The increase in new home construction ascended by 12.1 percent for an annual new housing start rate of 954,000. The actual rate of new home construction in 2012 was 780,000 homes, in 2011 the number was lower with 608,000 recorded.

The newest and final report from the government regarding 2012 housing starts supports economist’s contentions that new home construction is another sign of the influence of residential construction as an important factor in the United States economic recovery.

New Home starts exploded with an increase of 28.1 percent over 2011. This was the biggest annual gain in 19 years. While all the news for new home construction is good, it isn’t good enough as at the end of the housing boom in 2005 new home construction had peaked at 2.07 million. Average new home starts for 2000 to 2004 were 1.74 million homes per year.

All four sections of the country gained in housing starts with the Midwest leading with a strong 24.7 percent increase in December. According to the Commerce Department part of the surge in housing starts is attributable to a 20.3 percent surge in the volatile multi-family unit construction.

In addition to a record increase in housing starts, new housing permits jumped to a four-and-one-half year high.

Other good news for the construction industry was yesterday’s report form The National Association ofHome Builderss (NAHB) that for a third consecutive six-year high in its builder confidence index, although the index was flat month-over-month and remains below the point where builder optimism balances with builder pessimism.

The factors helping the industry recovery are a decrease in unemployment, improving sales and fewer foreclosures.

The National Association of Realtors reported that existing home stock will only last for 4.8 months, down 28 percent from just a year ago. As existing home stocks continue to dwindle the pressure for new home construction increases.

Buyers seem convinced that housing prices have hit bottom as existing home prices rose 7.4 percent year over year.

According to the National Association of Home Builders all this data indicates the single family home starts will increase by 35 percent in 2013 compared to 2012.

While all this news is good, it has to be put into context: 2011 was the worst year for new home starts in 50 years and the industry needs to nearly double new home starts to reach its pre-recession levels.

Take Away

New home starts are a major contributor to the lurching improvement in the United States’ economy. However, the industry is far short of its pre-recession levels. Rising employment, cheap mortgages, fewer foreclosures and falling inventories of new homes are pushing new home starts up. Never-the-lesss, the industry is far short of pre-recession levels.


Good News for New Home Starts Is Not Good Enough

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