By Peter Ricci
Housing construction, as any observer of the real estate market knows, suffered mightily in the post-boom housing economy, as scores of vacant, newly-built properties languished in new construction ghost towns.
Now, however, the situation is quite different. Privately-owned housing starts jumped by 15 percent in September and are now at their highest level in four years, while the Federal Reserve specifically cited upticks in single-family homebuilding in its latest Beige Book. So what’s behind this radically-changing scenario? Quite a bit, actually.
Housing Construction Turn Around – Reasons?
As the always-excellent Nick Timiraos recently pointed out on The Wall Street Journal, a number of factors have contributed to the housing construction turn around, among them:
- Firstly, Timiraos noted that housing construction was down quite a bit from it’s boom-era highs, so it was not going to take any radical changes to stimulate homebuilding activity.
- Thus, the recent pick-ups in consumer confidence, along with dramatically low mortgage interest rates, have produced noticeable interest in homes.
- The earliest interest in housing came from investors, who bought mountains of distressed properties; now, though, foreclosure inventory is way down (foreclosures made up only 14 percent of existing-home sales in September, down from 50 percent in February 2011), and consumers are instead looking at new construction properties.
- The unique home equity situation, Timiraos added, has also contributed to new construction demand; facing negative equity, home sellers are less apt to put their homes on the market, driving prospective homebuyers to look at newly-built homes instead.
Homebuilders Respond to Homebuyer Demand
So, as those earlier numbers on housing starts suggested, homebuilders are responding to consumer interest – single-family construction alone was up by 43 percent from a year ago in September, and applications for home-purchase mortgages, Timiraos wrote, were 12 percent above their 2011 level.
All of this had led to high expectations for 2013. As Glenn Kelman, the CEO of Redfin, wrote in a recent op-ed, recent housing construction has been confined to remodeling and completing half-finished projects, but if demand for new homes remains high, builders will begin starting new projects and hiring on more people.