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Housing Starts Up Sharply

In a Wall Street Journal article from August 19th by Josh Mitchell, it is reported that housing starts are sharply up for the year and have seen a strong uptick in July. Housing starts bode well for a general housing recovery. We have already begun to go back to our old buying style of buying new homes from developers in Oklahoma City.
I am relatively sure in the coming months we will be seeing more attractive opportunities in buying brand new products in other markets as well. It took a long time for the builders to be able to put out a competitive product for real estate investors, as they played a serious “second fiddle” to existing homes, which were priced well below what they could offer.
We are pleased to see the trend as it was always our opinion that a prudent and safe real estate investment certainly includes brand-new homes with a builder’s warranty, with a fixed-rate 30-year loan paid off by the tenant and eroded steadily by inflation (as it is not pegged to the cost of living). This mode of real estate investment serves as the foundation of building a solid financial future and achieving long-term life goals of a solid retirement and sending our kids to college.
Builders have the ability to offer the buyers many “goodies” at a cost to them- that is much lower than the retail cost (an example might be a covered patio which costs $6K but only costs the builder $2K to build). This can create an attractive package for the investor.
We will have builders and new properties available at our upcoming 1-Day Real Estate Expo near SFO on Saturday, September 13th. I am looking forward to seeing you.
I am enclosing the full WSJ article for convenience:
U.S. Housing Starts Up Sharply in July – Renewed Strength in Housing Market Could Boost Economy
By Josh Mitchell
Updated Aug. 19, 2014 11:03 a.m. ET
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WASHINGTON—Home construction surged in July, a sign that renewed strength in the housing market could boost the economy in coming months.

Housing starts climbed almost 16% last month to an annual rate of 1.093 million units, the Commerce Department said Tuesday. That marked the highest level of construction since November, driven by a pronounced rise in new apartments.

Home construction rose 22% in the year through July, and a rise in applications for building permits last month suggests further gains this year. That could ease concerns at the Federal Reserve of a weak housing sector weighing on economic growth this year.

”With housing starts up 22% over the last year, the Fed’s concern about a ‘slow’ recovery in the housing market looks misplaced to us,” Economist John Ryding of RDQ Economics said in a note to clients. But details within Tuesday’s report raised questions about whether the construction gains will be sustained. Last month’s rise appeared to be due partly to a rebound in construction in the South after rainy weather caused delays earlier this summer.
Such rebounds are typically temporary. Also, the bulk of the increase was due to surging apartment construction, a volatile category that can mask underlying strength in the market. And it’s unclear whether the housing market will be able to maintain momentum if mortgages rates rise, as many economists expect them to as the Federal Reserve moves toward raising its benchmark short-term interest rates from near zero.
Amid the prospect of higher costs and weak income growth, Fannie Mae’s economics group downgraded its forecast for home sales and construction on Monday. It now expects construction of 1.43 million single-family units this year and next combined, down from an earlier forecast of 1.61 million units.
A measure of affordability, which takes into account interest rates, home prices and median household income, hit its lowest level in six years in June. That reflects a run-up in home prices.
Interest rates have fallen back to year-ago levels in recent weeks after rising late last year. The average rate on a conventional 30-year mortgage stood at 4.12% last week, down from 4.53% in the first week of the year, according to Freddie Mac.
But overall the report boosted hopes of a stronger housing recovery. In July, applications for building permits, a construction bellwether, climbed 8.1% to a 1.052 million rate. That suggests construction could pick up further in coming months. Sales of previously owned homes have picked up in recent months, buoyed by historically low interest rates, mild weather, and stronger job growth in the U.S. But sales of new homes have moved sideways. The latest pickup in home construction could signal builders are gaining confidence that overall sales will rise as the broader economy gains momentum.
From a year ago, home construction was up 21.7%. The home-construction market has steadily recovered from the depths of the recession but has yet to regain its strength from the levels that preceded the boom years in the 2000s.
At the height of the housing boom in 2005, just over 2 million homes were built. After the crash, housing starts fell to 554,000 in 2009, during the recession. Tuesday’s report showed that starts on single-family homes, which reflects the bulk of the market, climbed 8.3% in July from June.
Construction of multifamily units—mostly condominiums and apartments–rose 33% to a pace of 423,000 units, the highest level since January 2006. That category is more volatile. Other recent signs point to a strengthening housing sector.
A measure of home builder optimism rose two points to a reading of 55 this month, the National Association of Home Builders said Monday. Existing-home sales rose in June to the highest level since October, the National Association of Realtors said last month. The trade group is expected to release July’s data Thursday.

Write to Josh Mitchell at joshua.mitchell@wsj.com
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