Often an indicator of the health of the national economy, new housing starts have been closely analyzed over the past five years. From 2008 on, the US economy and the construction sector have been witnessing a dramatic slowdown that has choked the life out of the real estate industry and construction firms. The trickle down effect of a slow housing market (including reduced construction employment) has been higher unemployment rates, less demand for heavy equipment and machinery, less business for the financial institutions that provide financing for construction work, and a general lack of movement around home sales and new home starts.
Over the past few months, construction industry analysts have noticed an encouraging trend – an increase in the number of new building permit requests for single-family homes. As an additional bright spot, fewer new building permits are being allocated to apartment dwellings, as more and more new single-family homes are being slated for construction. This is a positive indicator that our economy is shifting from one in which renting a home is more attractive than purchasing one. The total number of permits hasn’t seen an appreciable rise, but that is mainly due to the reduction in new apartment starts.
According to the US Commerce department, builders began to break ground on new builds at an annualized rate of 891,000 units. This is up from an annualized figure of 883,000, just the month before. With interest rates at near-historic lows, homeownership is becoming more and more attractive for an increasing number of US citizens.
What is concerning to some builders though, is the trend of rising mortgage rates across the US housing market. According to the National Association of Homebuilders (NAHB), builders have some trepidation about the housing market should interest rates continue to rise. With the US Government reviewing a scaling-back of its bond-buying program, interest rates may continue to rise – which wouldn’t help the housing market at all.
The NAHB points out that the impact of building one single family home is tremendous. One home provides three jobs that typically last for one year. The home generally drives more than $90,000 in tax revenues, providing funding for local and state-level projects that may in turn increase construction employment demand even higher. While new home construction is only one segment of the overall housing market, it does drive a significant amount of revenue. With new building starts at the highest levels we’ve seen in quite some time, the economy is no doubt poised for a sustained, though moderate, recovery.