Housing Starts, Builder Optimism at Recovery Highs

The Mortgage Corner

Privately-owned housing starts in June were at a seasonally adjusted annual rate of 1,174,000. This is 9.8 percent above the revised May estimate of 1,069,000 and is 26.6 percent above the June 2014 rate of 927,000. This tells us the real estate recovery is beginning to contribute to economic growth as it has in past recoveries.

So-called housing starts surged nearly 10 percent last month to an annual rate of 1.17 million, just a touch below a post- recession high. Builders were especially active in the Northeast and South that suffered so much from last winter.

And single-family housing starts in June were at a rate of 685,000; this is 0.9 percent below the revised May figure of 691,000. The June rate for units in buildings with five units or more was 476,000.

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Graph: Calculated Risk

“While builders are reporting overall confidence in the housing market, they continue to note difficulties accessing land and labor,” said NAHB Chief Economist David Crowe. “These headwinds appear to be affecting production gains in the single-family sector.”

Builder confidence was also the highest since 2005, according to the National Association of Home Builders. Builder confidence in the market for newly built, single-family homes in July hit a level of 60 on the just released National Association of Home Builders/Wells Fargo Housing Market Index (HMI) while the June reading was revised upward one point to 60 as well. The last time the HMI reached this level was in November 2005.

“This month’s reading is in line with recent data showing stronger sales in both the new and existing home markets as well as continued job growth,” said NAHB Chief Economist David Crowe. “However, builders still face a number of challenges, including shortages of lots and labor.”

Construction on multi-dwelling projects with five units or more soared to the highest level since 1987. Builders have devoted more effort to these kinds of projects instead of their traditional focus on single-family homes because of a growing trend toward renting, especially among younger millennials, children of the baby boomers. Greater difficulty in obtaining mortgages has also compelled some people to rent.

Yet rising demand for rental units has also forced up the cost of housing, especially amid a shortage of new units available. A separate government report on Friday showed another sizable increase in the cost of shelter in June, with housing expenses up 3 percent in the past year.

It all points to rising demand for shelter for the millennial generation that is seeing better jobs and has to begin to pay off their huge educational loans. It’s a negative sum game for both student-borrowers and the economy. According to the Consumer Financial Protection Bureau, student loan debt has reached a new milestone, crossing the $1.2 trillion mark — $1 trillion of that in federal student loan debt, says Forbes Magazine.

According to The Institute for College Access and Success (TICAS) Project on Student Debt, the average borrower will graduate $26,600 in the red.  While there are lots of stories of graduates with crippling debt of $100,000 or more, this is the case for only about 1 percent of graduates.  Yet 10 percent of college graduates accumulate more than $40,000.

That is the reason so many millennials can only afford to rent at the moment, and why rental housing construction will be the priority for builders, at least until 2020 when most of the so-called echo boomers (now aged 16 to 35) have matured into adults and begin to form their own families.

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
This entry was posted in Consumers, Economy, Housing, housing market, Weekly Financial News and tagged , , , , , , . Bookmark the permalink.

One Response to Housing Starts, Builder Optimism at Recovery Highs

  1. Tangela says:

    It’s impvartiee that more people make this exact point.

    Like

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