New-Home Market on Slow Route to Recovery

Construction in the new-home market took a pause last month after showing a gradual upward recovery trend the previous months. Housing starts, reflecting both single-family and multifamily homes, slipped by 1.6 percent in November month over month, reaching an adjusted annual rate of 1.28 million units, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

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Nevertheless, groundbreaking on single-family and multifamily homes is up 7.7 percent compared to the first 11 months of 2013.

“Over the course of the year, the number of houses under construction has been on an upward trajectory, signaling that housing is moving forward,” says David Crowe, chief economist of the National Association of Home Builders. “With strong demand, affordable home prices and favorable interest rates, we should see housing production continue to grow into 2015.”

In November, most of the fall in housing starts was attributed to the single-family sector, where building was down 5.4 percent to a seasonally adjusted annual rate of 677,000 units. Multifamily production, on the other hand, climbed 6.7 percent to 351,000 units in November.

Across the country, overall housing starts rose by the highest amount in the West, which saw a 28.1 percent month-over-month gain in construction, followed by a 14.4 percent increase in the Midwest and an 8.7 percent gain in the Northeast. Housing starts plunged 19.5 percent in the South last month, the Commerce Department reports.

Building permits, a three- to four-month gauge of future construction, were down 5.2 percent in November. Most of the drop in building permits was due to an 11 percent drop in multifamily permits. Single-family permits fell 1.2 percent in November to 639,000 units.

Still, “it is hard to complain about the housing sector,” Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pa., told Reuters. “The U.S. economy is on an accelerating growth path that should continue for quite some time. We don’t need a robust housing market to drive growth.”

With employment showing signs of strengthening, the housing market may gain steam in the new year.

“We believe that it will be only a matter of time before the housing recovery shifts up a gear or two and provides a crucial second wind to the economic recovery,” says Millan Mulraine, deputy chief economist at TD Securities in New York.

Source: National Association of Home Builders and “U.S. Housing Starts Fall, But Trend Points to Recovery,” Reuters (Dec. 16, 2014)