New Home Sales

The U.S. Commerce Department reported that Groundbreakings for new homes surged 26.6 percent and permits to build new homes rose 30 percent in June compared to one year ago.

Housing starts (groundbreakings) and permits each reached eight-year highs, with both metrics rising on the strength of multi-family housing. Housing starts stood at a seasonally adjusted, annual rate of 1.174 million in June. That’s 9.8 percent higher than the revised May estimate of 1.069 million, and substantially more than from June 2014′s rate of 927,000.

Single-family housing starts in June were at a seasonally adjusted, annual rate of 685,000, which was down 0.9 percent from May’s revised figure of 691,000. Starts on buildings with five or more units shot up by 28.6 percent in June, to a seasonally adjusted, annual rate of 476,000.

Permitting for June reached a seasonally adjusted, annual rate of 1.343 million, the highest level for the nation since July 2007, when the seasonally adjusted, annual pace stood at 1.361 million.

June permitting was 30% higher than this time last year, when the estimate was 1.033 million. The June level was 7.4 percent higher than May’s 1.25 million.

As with housing starts, much of the increase in permitting came via multi-family projects: permits for buildings with five or more units hit 621,000 in June, up 16 percent compared to May, while permits for single-family homes rose just 0.9 percent at 687,000 in June compared to May’s 681,000.

Friday’s groundbreaking numbers fell within the range of expectations of economists surveyed ahead of the release; while permitting numbers surpassed expectations.

Although Friday’s numbers point to a major increase in multi-family housing, single family home builders are still feeling good about the market for newly constructed single-family homes as reported by the Homebuilders Market Report (HMI).as confidence in this sector hit a level of 60 in July. A reading of 50 or higher means that more builders rate conditions are good than poor; the measure has now hit that mark for just over a year. June’s reading was also revised up one point to a level of 60. The market has not seen a level that high since November 2005.

This month’s reading is in line with recent data showing stronger sales in both the new home sales and existing home sales.

Multifamily construction has been strong during this housing recovery, as builders stepped in to meet demand fueled by people who lost their homes in the downturn and have become renters.

The nation’s home ownership rate is currently at a 20-year low of 63.7 percent, and first-time buyers market share has dropped from 40 to 45 percent of around 29 percent and even lower in previous months.

However there is evidence that the apartment demand may be peaking as seen in the Architecture Billings Index for multifamily residential projects continues to fall for fourth consecutive month. Still, there are already numerous projects in the pipeline, and given the strength in permits thus far, multifamily starts are anticipated to finish on a high note in 2015.

Housing economists have said that the nation needs about 1.5 million unit of new homes annually to bring supply back in line with demand, and right now single-family starts are still low. As of the end of May, new housing available for sale stood at a 4.5 month supply, well below the 6-month supply considered a healthy market. Single family housing starts are still 40 percent below what they should be and we are seeing strong household formation by the Millennials, which is putting pressure on many local housing markets. A 4.5 month supply, which is well below the normal average of 6 months, will not sustain demand in the near future and unless single family building activity picks up, we will see a housing shortage.”

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