We get a second piece of positive news out of the housing industry in as many days today as the Commerce Department announced this morning that new home construction jumped 3.6% in June.No one is going to put forth the argument that the housing market is all of a sudden in good shape again, but we are starting to see signs that things could be at least leveling off, which is the first step that needs to be made.
Yesterday we got news that homebuilder sentiment rose to its highest level in the past 10 months, and combined with today's news that new construction rose in June we are seeing indicators that the beaten up housing sector could be starting to recover.
The number of new homes and apartments built in June rose to a seasonally adjusted annual rate 582,000, which was up from June's tally of 562,000. We can view the 20,000 home jump as a positive, but also have to keep in mind that we are still well below the 1.1 million seasonally adjusted annual rate from last June.
June's figures were driven by a 14.4% jump in the construction of single family homes.
Going into today's report, analysts had been expecting to see a much smaller 530,000 housing starts.
The main reasons for the jump in new home construction last month was, once again, falling home prices and government tax incentives for first time home buyers. While these factors are helping the industry for the time being, there is the risk that things will turn downwards again once the incentives expire.
Right now first time home buyers are eligible for a tax credit for 10% of the cost of a new home. The credit has a cap of $8,000 and it will be expiring in November. If the plan is not extended, there is the risk that buyers will start to disappear from the market at the end of the year.
One thing that is going to have to ease before we can really see a true recovery in housing is the current unemployment situation in America. The latest figures show that unemployment has risen to 9.5% and is expected to easily climb through 10% over the next few months. Michigan being the worst hit state with a current unemployment rate of 15.2%. As long as people are worried about losing their jobs, housing demand is going to remain weak.
What are your thoughts on the housing market? Have we seen the worst already, or should we be bracing ourselves for more declines in the months to come?
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Reader Comments (Page 1 of 1)
7-17-2009 @ 5:43PM
al coholic said...
Think about this.....
In 1979 housing starts were about a million. We're talking about a time when there were 50 million fewer people in the US. So we have "recovered" to the point where starts are about half what they were thirty years ago?
Need I say more?
7-17-2009 @ 6:00PM
Donovan said...
Are these single family homes being built, in if you will, in tract type home subdivisions? Its all well and good for a builder to build homes in a subdivision. But the question is, will all the homes he builds sell? If the price is right, and the prospective home buyer(s) are able to get financing, thats great. However, to build new mass subdivision housing on speculation the homes will sell. Is rather a risky financial venture for a builder.
As for new apartment buildings. People usually rent long before buying their first home. So, building of apartment complexes/buildings seems to be of a lessor financial risk for a builder. Again, if the price is right, the apartments will stay rented.
In either case, buying or leasing. Several factors still come into play. Our overall economy in general, job security, and available credit. So, until such time as these three factors stabilize, and remain stable. It pretty much leaves everything, in a your guess is as good as mine situation.
But at this point in time, to speculate, and or assume. Is most likely not a good idea.
7-17-2009 @ 6:51PM
uclalien said...
This supposed increase tells us nothing about the state of the housing market considering the margin of error for this 3.6% number is +/-11.3%. As a result, it's perfectly within reason to believe that there has been zero or negative growth over the past month. Not to mention that 582,000 is still 46% below the June 2008 number.