Housing Starts, Home Prices, and Talk of an Impending Bubble?

In May, housing starts rose nationwide by 6.8 percent due to an increase in the production of multifamily homes. That equals roughly 914,000 units on a seasonally adjusted annual basis.

Much of the country received wet weather in May which slowed the building of single-family homes, however despite the setback, there was an increase in permits issued for single-family units. This goes to show that housing is slowly but surely recovering.  Single-family housings starts remained at a steady pace of roughly 599,000 units in May.

Builders across the country are able to respond to this demand for construction of new homes as well as rental apartments. The only problem that is keeping the new housing industry from booming is that lack of available building materials, lots and willing laborers.

Despite great figures in housing starts, the actual issuance of new building permits has declined in May by 3.1 percent, which relates to 974,000 units. This is because of a spike in multifamily permits in April that led to a 10 percent decline of units. However, the single-family side of the coin has seen their best pace in five years with permits increasing by 1.3 percent to 622,000 units in May.

The country has also been seeing an rise in home prices and this has caused many to worry that we may be entering into another "bubble" that will eventually burst and cause another recession. The prices have climbed more than 10 percent nationally in March and April, and these double-digit gains in prices are unsustainable, but many economists believe it may be too early to say we are currently in a bubble.

The current average home prices are relatively low today when compared to historical values. They are still 28 percent below what they were during July 2006's price peak.

So while many fear that we are heading for a bubble, others argue that it is premature to assume such. Yes, the market is recovering steadily but we still have a long way to go to catch up to the levels we were once at before the recession. Home prices will continue to rise and, for now, it should be perfectly fine. We will continue to monitor the situation.

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