Curve

Breaking: Housing starts up, hurricanes dampen builders’ optimism

Deborah Kearns
The Mortgage Reports contributor

Mixed news for housing, how will that affect you?

While overall housing starts fell for a second straight month, single-family building was good news for new construction.

Of course, that was before Hurricanes Harvey and Irma barreled into Texas and Florida.

Verify your new rate (Dec 8th, 2019)

July builder numbers

Housing starts for privately-owned homes fell minimally to 1.18 million units in August. That’s 0.8 percent below the revised rate of 1.19 million in July, reported the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

But the slight dip, which includes both single-family homes and multifamily properties, isn’t a huge surprise. Furthermore, overall housing starts are still 1.4 percent higher than August 2016 levels.

Even better news: single-family housing starts increased 1.6 percent from July to August, and building permits spiked by 5.7 percent month-over-month, too.

What happened?

What’s driving the mixed numbers? For starters, builders are worried about shortages in labor and higher material costs after the recent hurricanes that hit Florida and Texas. (And don’t forget: hurricane season doesn’t end until Nov. 30.)

As we head into the final months of the year, when homebuyers typically pull back from the market, new construction will likely see a slowdown.

However, it’s a good sign that building permits are up and that we’re not seeing wild swings in multifamily building. Apartments and condos provide much-needed apartment rentals for households who aren’t yet in a position to buy.

Hurricanes likely to be on a drag on homebuilding
After Harvey and Irma moved on, they left behind untold destruction and billions of dollars in damage.

The storms are also giving builders a sense of unease.

Builders less confident

Concerned about labor and material costs after the hurricanes, builder confidence slumped by three points to a level of 64 in September from August on the National Association of Home Builders/Wells Fargo Housing Market Index, or HMI.

If builders can’t find enough skilled workers and material costs keep rising, it’s harder for them to start and complete new-home projects.

That said, as long as the economy continues to fire on all cylinders, buyer demand will still be there.

Consumers want more houses

“Despite this month’s drop, builder confidence is still on firm ground,” says Robert Dietz, NAHB’s chief economist. “With ongoing job creation, economic growth and rising consumer confidence, we should see the housing market continue to recover at a gradual, steady pace throughout the rest of the year.”

Although all three HMI components — builders’ perceptions of current new-home sales, new-home sales in the next six months and buyer traffic — fell in September, they still remain at favorable levels.

Still reasons for optimism in new construction
While it’s true builders and consumers alike would benefit from more new-home building, the new construction market is slowly regaining its momentum.

Buyer demand, especially from millennials, will continue to play a key role in its success, says Gary Magnuson, executive vice president and head of commercial real estate finance at Citizens Bank.

“I think we’ll continue to see single-family home sales suffer from a lack of inventory, both existing and new, but there’s definitely demand,” Magnuson says.

Location, location

Of course, the prolific mantra that “all real estate is local” rings true when you look at home building, Magnuson points out.

And that applies whether you’re looking at new single-family homes or multifamily apartment buildings, which are still in high demand from those who aren’t ready (or wanting) to make the leap to homeownership.

New, multifamily construction has been on a path of stability, leaving behind the dramatic overbuilding seen before the housing downturn, he notes.

Overall, there are still plenty of reasons to be optimistic about the direction of new construction as a whole.

“The economy is still doing pretty well, unemployment remains relatively low, and mortgage rates are at an all-time low,” Magnuson says. “That all adds up to now being a good time to buy a home.”

What are today’s mortgage rates?

Current mortgage rates remain at highly-affordable levels. However, increased building often implies economic heating, and that can push rates higher if inflation becomes a concern.

Verify your new rate (Dec 8th, 2019)