New-Home Construction Soaring

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Construction of new homes in the U.S., known as housing starts, jumped almost 10 percent in January to an annual rate of 1.33 million. That’s the second highest level since the Great Recession and it easily exceeded the 1.24 million forecasts by economists. Permits to build new homes also hit a 10 1/2-year high, rising 7.4 percent to an annual rate of 1.4 million.

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Graph: Econoday

This is in part because Americans’ homeowners rate jumped to 64.2 percent in Q4 of 2017, a 3-year high, the Census Bureau said Tuesday. The homeownership rate hit an all-time high of 69.1 percent in 2004 as the housing bubble inflated. In the aftermath of the crisis, it skidded lower and lower, finally bottoming out at 62.9 in 2016, according to Andrea Riquier’s chart in Marketwatch.

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Graph: Marketwatch

The chart also tells us we are back to a more normal ownership rate of 64 to 66 percent that prevailed from 1980 to 2000, before the onset of the housing bubble. There were 1.52 million more owner households compared to a year earlier, and 76,000 fewer renter households. Homeownership among those under 35 jumped to 36 percent in the fourth quarter from 34.7 percent a year before—a new high and evidence that the millennium generation is finally moving out of their parents’ home and forming new households.

No wonder there are more homebuyers as the University of Michigan said its consumer-sentiment index rose to a reading of 99.9 in February, up from 95.7 in January and the second-highest level in 14 years. There were big gains in both the current economic conditions and the expectations indexes.

With a strong jobs market and solid economic growth, consumers have been confident. While analysts had expected some impact from the volatile stock market, it wasn’t a factor — just 6 percent of all consumers discussed it. The University of Michigan said favorable references to government policies were cited by 35 percent in February, unchanged from January, and the highest level recorded in more than a half century.

What were the favorable government policies? It’s possible the tax cuts are boosting optimism, especially as we approach April 15, the tax filing deadline, which should put more money in consumers’ pockets.

Ralph McLaughlin, chief economist for Trulia said, “18-35-year-olds represent the largest potential group of homebuyers that aren’t yet homeowners (roughly the millennial demographic), and 35-44-year-olds (roughly Gen X) represent the demographic that was most impacted by the foreclosure crisis. Increases in homeownership amongst these two cohorts are a sign that the scars of the Great Recession are finally starting to heal.”

Will more housing be built to fill the increasing demand for ownership? Home building increased 2.4 percent to 1.202 million units in 2017, the highest level since 2007 just before the Great Recession. Major hurricane damage in Texas, Florida, and from the back-to-back hurricanes in Puerto Rico are sure to boost housing production this year, and they may be priced more reasonably, since many of the homes that need replacing were in lower lying flood-prone areas. A total of 15,500 homes were destroyed in Texas’ Hurricane Harvey, according to their ABC-TV, Channel 13.

Harlan Green © 2018

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
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