What a 22.7% Rise in US Housing Starts Really Means
Interest rates are up since last spring. The economy is hardly in full recovery. And housing prices are at their highest mark in years. So why did we see new home construction surge to its highest level in six years?
Blame it on the folks with good jobs and good credit.
During the last building boom, planned communities included McMansion neighborhoods built in conjunction with condo communities located just down the road. This more affordable housing option was presented as an excellent opportunity for lower income households to claim their share of the American Dream.
Unfortunately these lower income households often relied on industries that no longer exist. Sub-prime lending and no doc loans allowed millions with challenged credit to get stuck in homes they could not afford. High levels of foreclosures and decreased demand for these lower-priced housing neighborhoods resulted in a significant drop in home ownership and home prices across the country.
Now single family homes represent the fastest growing segment of the new uptick in new-home starts. Why is this segment of the new-home market seeing such an increase in demand?
Low Interest Rates: Even though interest rates are on the rise, the rate for a 30-year fixed mortgage was 4.42% as of last week. Rates in the 4-5% range are historically very low. For people buying a home for their next 30 years, the rates still cannot be beat.
Increased Economic Confidence: Economies are local, just like Real Estate. Even though our national economy is still in a state of healing, a lot of Americans are in full recovery. Personal income confidence and job stability go a long way in making a decision to purchase a home.
Stabilized Housing Market: There was a time, not so long ago, when home prices were dropping by the day. Now prices have stabilized and are increasing in many markets around the country. More importantly, consumer’s perception of the state of the housing market has improved. As a result, many people who were uncertain about buying a new home are taking that plunge.
Investment in the Future: Single family home buyers look at purchasing a home as an investment in their future. It’s a place to build and grow a family. It’s a place to build memories. All of these reasons supersede temporary economics and housing markets.
The good news is that new-housing starts are up 22.7% in November. The better news is that the surge is being led by a segment that’s confident in the current state of the country and is investing in our shared future.