New Home Starts Increase in July

Housing starts across the country increased by 5.9% for the month of July, according the National Association of Home Builders‘s (NAHB) article from August 16. This percentage translates to an adjusted rate of 896,000 units, determined by the US Census Bureau and the Department of Housing and Urban Development.

So what do these numbers mean for homebuilders and their clients?

When the housing supply began to dwindle in June, there was concern that builders would not be able to keep up with the high market demand. These numbers show that homebuilders have been able to come back and refresh the supply of available new homes.

When the housing market dried up during the 2008 recession, new home construction halted. Due to an unnaturally saturated marketplace, buyers were purchasing homes at unfortunately low prices, causing builder profit and sustainability to plummet.

Fortunately, the market has bounced back and the ball is now in the builder’s court. Houses have been selling like hotcakes, with mortgage rates steadily increasing to prey on the market. Communities and builder neighborhoods have even experienced selling out during pre-sale.

The biggest concern for builders is how to sustain this wave. One way to do this is to keep buying more land so you can keep building homes. Land is a limited commodity and location is still the number one factor for homebuyers, so you’ll want to choose carefully.

This increase in housing starts is best explained by the builders’ reaction to market demand.

NAHB Chairman Rick Judson, a homebuilder himself, explained, “Builders are making every effort to keep up with the rising demand for new homes and apartments, and construction in both sectors is running well ahead of the pace we saw at this time last year.” Judson continued, “However, ongoing issues with accessing credit and limited supplies of finished lots and labor are making it tough to do that, particularly for single-family builders.”

The 6% spike in July supports the notion that homebuilders are able to overcome the drawbacks Judson discussed.

David Crowe, Chief Economist for the NAHB said, “Today’s report is in line with our forecast for continued, gradual strengthening of housing starts and permit activity through the rest of the year. The double-digit bounce-back on the multifamily side was in keeping with typical month-to-month volatility in that sector while the sideways movement in single-family was a result of unusually wet weather in the South and West.”

The market remains at a 305,000 multifamily unit pace, marking a 26% gain to offset June’s decrease. Available new single-family units declined at 2.2%.

Across the country, there was a wide gap between the highest gain and loss for July. The Northeast gained 40.2%, while the Midwest rose 25.4%, and the West increased 7.2%. The South was the only region posting a decline, coming in with a 7% decline for the month of July.

Building permit issuance rose 2.7%, which translates to a rate of 943,000. The issuance of building permits can be used to indicate future building activity, and these numbers tell us that things are going well for homebuilders. Builders should continue to put up new homes in order to maintain the market numbers we’ve been seeing this season.

For more information on the subject, refer to the NAHB’s article here.