Home construction spending rises: Could it impact home prices?

October 11, 2017 - 2 min read

Home construction on the rise, but is it enough?

Slow housing starts have played a big role in creating today’s inventory-strapped real estate market. But according to new data from the National Association of Home Builders (NAHB), hope for more home construction—and subsequently lower prices—just may be in our sights.

Builders pick up the pace

According to NAHB analysis of the latest U.S. Census Bureau Construction Spending report, private residential spending jumped 0.5 percent in August. This marks its fourth monthly increase in a row. Over the year, private residential construction rose nearly 12 percent.

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Private residential construction totaled about $521 billion for the month of August. Single-family construction, in particular, rose 0.3 percent, while construction on multi-family properties jumped 0.9 percent.

Though single-family construction is nowhere near its mid-2005 peak, according to NAHB data, it’s currently at its highest level in nearly a decade.

Rates are low on new construction, too

In a separate analysis, the NAHB found that mortgage rates on newly constructed homes are historically low. Sitting at 4.01 percent, they’re well below the year’s high point—and below the average rate on all loans in general.

The average mortgage rate for new-construction homes is nearly 0.50% above the low touched in October 2016, the NAHB reported. “However, it remains 17 basis points below the recent high reached in February 2017. In spite of the month’s increase, mortgage rates remain historically low.”

The average rate on new homes is lower than previously occupied ones, too. According to the Federal Housing Finance Agency, the rate on pre-occupied properties came in at 4.05 percent for August—up six basis points from July.

Today's mortgage rates

As construction continues to pick up, it should temper price growth and make homeownership more affordable. But remember: home price is only one part of the equation. To get a great mortgage rate too, be sure to shop around with various lenders.

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Aly J. Yale
Authored By: Aly J. Yale
The Mortgage Reports contributor
Aly J. Yale is a mortgage and real estate writer based in Houston who has contributed to Forbes and worked for organizations such as The Dallas Morning News, PBS, NBC, and Radio Disney.