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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Housing Starts take a dip in January

According to HUD and the Census Bureau, housing starts took a nationwide dip in January with a decline of 8.5% which is 890,000 units. This was based on a seasonally adjusted annual rate.

Specifically, single-family housing starts were little changed, registering a 0.8% gain to 613,000 units.  The pace of these starts have been improving; this was the strongest production pace for single-family housing since July 2008.

However, multi-family housing starts were the biggest contributor to the nationwide decline. These tend to have significant month-to-month volatility. In January, they declined 24.1% to a mere 277,000 units.

Bad news for housing starts doesn't necessarily mean bad news in the rest of the market.

Issuance of permits for new-home construction has increased by 1.8% to 925,000 units which is the quickest pace since mid-2008.

"Steady demand for new homes is prompting builders to put more construction crews back to work in order to replenish thin supplies of completed product," said Rick Judson, chairman of the National Association of Home Builders (NAHB) and a home builder from Charlotte, N.C. "We expect this progress to continue through the spring buying season and beyond, with credit availability and poor appraisals being the primary limiting factors."

Permit issuance can be an indicator of future building activity. Single-family permits rose 1.9% to a seasonally adjusted annual pace of 584,000 units. The multi-family permits increased by 1.5% which is a 341,000 unit pace. Both of these are at their strongest paces since 2008.

"Today's report is quite positive in that it shows continued upward movement in single-family housing production and permitting activity for both single- and multi-family units," noted NAHB Chief Economist David Crowe. "Meanwhile, the decline in multifamily starts reflects an adjustment from an unsustainably large gain in December, and is consistent with the up-and-down swings that are often associated with that sector."

As always, the housing market has its ups and downs, but overall, the economy is recovering. As these reports continue to come out, we receive more and more data that points to overall improvement!

If you are ready to purchase a home, call us at 888-883-5252. We can answer all your questions.

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