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Last month we had pretty good news from the Commerce Department: Privately owned housing starts in June were up 9.8% from May. More supply for the intense demand! More confirmation of the unabated upward trajectory of the new-home market! Right?
July 2015’s new residential construction numbers aren’t quite as dramatic, but it’s certainly not bad news either. Privately owned housing starts were up 0.2% from June, from 1,204,000 to a seasonally adjusted annual rate of 1,206,000. That’s 10.1% up from June 2014.
July’s housing completions were up 2.4% above June’s revised estimate of 964,000, and that’s 14.6% above July 2014.
So what does it all mean to home buyers?
“We need these increases,” said Jonathan Smoke, chief economist at realtor.com®. “An increasing level of new construction is the primary way that the housing market will find balance in this surging demand but tight supply environment.
“Both home prices and rents are rising at well above normal levels, and that market signal is exactly what builders and developers need to find confidence to start new construction.”
Permits, on the other hand, which lead starts, were down 16.3% from June, to a seasonally adjusted annual rate of 1,119,000. The single-family permit decline—1.9%—was less steep than multifamily. Spurring this plunge: “It’s being driven by a 60% drop in the Northeast, where tax credits expired on June 30, moving permitting activity ahead,” said Smoke.
Let’s take a step back: This is normal. As Smoke said, “Multifamily construction by definition comes in blocks—you don’t start one apartment; you start a 200-unit building!”
Despite permit numbers on the decline, builders are more confident than they’ve been since before the bubble. “The last time that NAHB’s Housing Market Index, the leading measure of homebuilder sentiment, was as high as yesterday’s reported number for August was in November 2005,” said Smoke.
More reason to hope: Said Smoke, “We expect new construction to continue to post gradual gains throughout the year.” Will it cause home prices to steady? In markets from Seattle to Connecticut we’ve seen prices slow or decline.
Still, said Smoke, don’t expect a sudden rush of affordable housing. There’s not that much supply, but, “if we keep seeing increasing activity, the level of appreciation should moderate to more normal levels.”
Normal? Well, it beats crazy. We’ll take it!
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