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Home Building Activity up 12%: Highest Number in More Than a Decade

by | Oct 17, 2019 | New Construction

Here are the numbers: new home construction soared to 12% August 2019 which is the fastest pace in years as the market has stabilized and mortgage rates dropped.

The annual rate for housing starts is now 1.36 million and was only 1.22 million in July. There has not been an increase like this since 2007. The anticipated number that economists had predicted was 1.26 million.

Not even that, but the rate for permits to build additional homes rose 8%. This adjusted pace went from 1.32 million in July to 1.42 million now. For permits, the predicted number was 1.30 million.

How did this happen?

The construction of multifamily properties significantly boosted overall housing starts. A 30% jump was tracked for construction of buildings with 5 or more units, which makes an annual rate of 424,000. Single family homes rose 4% to 919,000 but August still takes the lead for the strongest month for single family starts since January.

The only part of the country where these rates did not increase is in the West. The activity in this region kept at the same pace as in July. Overall, housing starts were around 7% higher than last year’s rate.

Economists expected permitting activity to slow but instead it increased in August across both single and multifamily segments. Aside from in the West where this number fell 8%.

The Big Picture

These new construction figures just so happened to be released while the Federal Open Market Committee appears intent to cut short-term interest rates. This decision is likely influenced by the same issues home builders have faced. Mainly of which is the potential impact from the war on trade affecting buyers’ confidence.

This economic uncertainty created a significant hurdle, but a major advantage soon came into play: Failing mortgage rates. This past summer has brought a steep drop in mortgage rates and has eased the constraints that consumed prospective home buyers in terms of affordability.

Now that this grouping of worried home builders has been mitigated, they have come off the sidelines and have helped to rebound the demand for housing. Builders are looking to capitalize on this progression and have started to increase permitting activity.

What do the experts say?

Ali Wolf, the director of economic research at Meyers Reach Group says “Builders are pivoting their supply to help address entry-level demand, but scarce developable land in desirable locations met with high prices is making their job hard,”. He reassures that even with this tight supply, the new home market is still on track to soar in sales since 2007.

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