Tight Lendng Keeps New Construction at Historic Lows in Portland OR
Construction on new U.S. homes fell last month pulling back after a November surge, still the whole of last year had the strongest showing since 2007. Construction on new U.S. homes dropped 9.76% in to a seasonally adjusted annual rate of 999,000, as starts slumped for single-family homes and apartments. Despite the decline, new starts for all of 2013 hit 923,400 - the highest annual total in 5-years - pointing to the housing market’s continued recovery.
News Construction Fall In December But Still Improved Annually
There has been a newfound urgency to beef up what have been skimpy inventories of new homes for sale. In short, builders are eager to get more homes started now because they expect the buyers to come out in force in the spring. An influx of new supply remains vital to the housing market's ability to sustain itself over the long term - especially in coastal markets like Boston, Los Angeles, New York, San Francisco and San Diego where inventory shortages led to sometimes-volatile rates of price appreciation in 2013.
In particular, last month's data may have been skewed by extreme cold weather that crushed the Midwest and Northeast, causing many projects to stall or cease operation. Economists expected the cold streak to take a toll and forecast that overall housing starts in would decline to a rate of 985,000 from a prior starts-rate estimate of 1.107 million for November.
Recent reports illustrate a housing market that is growing over the long term - the starts rate in was up 1.67% from the year-earlier period, and 2013’s level was up 18% from 2012. Year-over-year comparisons often serve as better barometers for the true state of the market. Based on those gauges, start rates in December exhibited improvement in almost every regard, but the rate at which new units are being constructed still lags behind the demand that persists in many areas.
Construction is much farther below traditional, long-term start rates than home prices and sales volumes, which have largely recovered. Slow household formation and elevated vacancy rates can explain why new construction remains so far below normal. But builders and buyers also face a number of challenges in 2014. For one, mortgage rates are expected to continue to rise, curbing some purchase plans. Also, lenders and borrowers face new mortgage rules this year.
Last month the government reported that building permits, a sign of future demand, fell 3.05% in December to an annual rate of 986,000. But for all of 2013, permits hit 974,700, also reaching the highest annual level since 2007.
Despite a bumpy end of year, home builders have reason for optimism. There’s plenty of pent-up demand, and sufficient job growth could enable more buyers to make a purchase. Also, lenders who saw refinancing applications plunge last year are hungry for mortgage revenue, and may ease standards for borrowers to obtain purchase loans.
Confidence among home builders is near the highest level since 2005, with many optimistic about sales of single-family homes. There’s still room for builders to produce more homes as the current construction pace is far below the 1.7 million starts per year needed to maintain current stock and meet demand for replacement and second homes.