U.S. Housing Rebounds As Builders Invest In Houses Again, Not Apartments

March 12, 2019

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The U.S. housing market is beginning to rebound as builders start investing in houses rather than apartment buildings. According to the U.S. Department of Commerce, the housing industry ran at a seasonally adjusted annual rate of 1.23 million in January, suggesting that builders are more confident in American families’ ability to finance houses.

Builders have applied for more permits to start construction on houses in the near future. This is an exciting move for homeowners who have been grappling with the market’s low inventory.

Permits were 1.4% higher this past January than they were in December last year. Starts were also 19% higher than they were in December.

The biggest bet builders are making is on single-family houses. Starts for single-family homes ran at a 926,000 seasonally adjusted annual pace, which is considered the strongest monthly tally since the housing market has recovered.

Why is this such a big deal? Because of the significant dip in housing inventory.

U.S. homebuilders have been producing too few homes in the last few years, which has caused an inventory issue with a growing population. Economists at Freddie Mac estimated in 2018 that the U.S. has a cumulative shortfall of approximately 5 million homes.

That massive shortfall has since turned the housing market into a seller’s market. Housing prices have risen with demand. Now it’ll be 20 years before young adults can afford to buy a home in a major city even with a credit utilization ratio lower than 30% of their original credit, which FICO recommends.

Other reasons for rising housing prices include installations of energy-efficient technology such as solar panels. But these technologies also help to save money later down the line. For instance, energy-efficient windows save 15% on energy bills.

With housing prices officially maxed out, the market is beginning to turn back into a buyer’s market. What’s more, the pace of new home building may pick up because a growing number of Americans have been ordering spec homes. This is a good thing, but also surprising considering 90% of homeowners believe a home inspection is necessary before buying a house at all.

Unfortunately, despite these gains in the housing market, the overall pace of residential construction will most likely remain slow. The housing market is still facing a labor scarcity and tariffs have increased the prices of building materials, even though approximately 94% of all new homes are built with wood frames..

“The rebound in starts reverses the December plunge, which likely was due to a combination of weather effects and homebuilders’ nervousness as the stock market tanked,” said Ian Shepherdson, the chief economist of Pantheon Macro. “[The] numbers hugely overstated the softening in the market.”

“New-home sales are now picking up, and the mortgage applications data point to further gains ahead, so single-family construction should creep higher,” said Shepherdson. The numbers for multi-family houses are wild, but overall trends are flat, he says. “Housing isn’t booming, but neither is it rolling over, and it isn’t going to drag down the rest of the economy.”

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