Housing Starts - Will There Be More Of Them?
With the economy and housing market having taken such a battering in recent months
, it is hardly a surprise that housing starts have become less. In July, housing starts were at 546,000 at an annual rate, which is lower than the 560,000 median estimate.
Much of this could be attributed to coming out of the first time home buyer tax credit period, where incentives to purchase bought forward demand from later in the year. In addition, the foreclosure rate being at an all time high means that more existing properties are becoming unoccupied, increasing inventory which in turn decreases the requirement for new homes to be built.
The immediate future for housing starts doesnt appear particularly promising either as applications for building permits declined in July 2010 to their lowest level since May 2009. Clearly, applications for building permits give a rather clear indicator of future projects, with these statistics clearly indicating that there's decreased demand for new homes than before.
Of course though individuals always require somewhere to live, whether they're renting or buying and as the population steadily rises, so will the demand for new homes. This is demonstrated well by one particular statistic, which shows that work on buildings which house multiple families, such as apartment buildings and town-houses, increased by a huge 33% in the same period. This clearly suggests that fewer people are deciding on owning an actual house and instead, move into more affordable accommodation, possibly with many of them choosing to rent.
Government incentives to assist homeowners who are struggling to fulfill their economic commitments due to loss in income could well assist the market by keeping potential foreclosures out of the market place. It's possible that the reason for the drop in building permits is because the number of house owners who are defaulting on their property loans is currently at an all time high. These statistics could be somewhat exaggerated though because it might be a situation of lenders postponing foreclosure so as to follow alternatives like short sales or the Home Affordable Modification Program. If this is the case then we might even witness a rise in the number of house starts as the market looks to catch up on previously overly negative statistics.
The number of multifamily houses however could certainly indicate a shift in public sentiment towards the value of being a homeowner as more and more people decide that it might be in their best interests to rent or opt for a more affordable property like an apartment. Alternatively, it might simply be an indicator that several individuals are simply not able to purchase a home at the moment and are looking to wait instead. It is even possible that these individuals might have just lost a property because of the recent crisis and even some potential first time buyers may not be able to fulfill the now stricter requirements expected to be eligible for a home loan.
If persons are selecting against purchasing their own house, or are simply noticing that they dont qualify then this won't be good for the house building trade. Though, it could just be a case of individuals waiting until after the economy has fully recovered, and we are almost certain to witness an increase in sales when the subsequent first time home buyer tax credit period arrives.
by: Cory Boatright
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