New Home Sales

Home building fell three percent in August, with declines in both single-family and apartment-building construction. A month earlier the seasonally adjusted annual rate was on track at 1.126 million. Most housing economists had expected August housing starts to fall 2.5% to 1.18 million.

Many housing economists had noted that a higher level of multifamily starts in June and July were due to developers rushing to begin construction in New York, before the expiration of an affordable housing tax credit, and the August’s drop doesn’t signal weakness in the housing market. Multifamily data have been very skewed lately, mainly because of the New York tax credit expiring, and the data for the third quarter is significantly below the second-quarter averages because of the effect of the tax change, but the underlying trends in the multifamily data remain solid.

New applications for building permits, a bellwether for forthcoming construction, rose 3.5 percent to 1.17 million, from a revised July rate of 1.13 million. Economists surveyed had expected 1.15 million building permits to be issued.

Permits for single-family homes rose to 699,000, the highest since Jan. 2008.

Single-family permits, the most important, and most stable number in the whole report, have now recovered from their winter drop and trending higher. Starts on single-family homes, which account for nearly two-thirds of the market, fell to 739,000. Multifamily units, which include apartments and condominiums, fell to 387,000.

Home-construction figures are volatile and often revised. Thursday’s report showed new-home starts revised down to 1.161 million in July, compared with an initial estimate of 1.206 million.

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Meanwhile, developers of multifamily projects, namely apartments, are finding ample capital available to finance their projects. Money spigots are wide open from New York to Honolulu.

Construction levels for new homes remain low by historical standards. Demand for homes for purchase remains strong, supported by low interest rates and the growing cost of rent in many areas. Despite this month’s slip, housing starts were 16.6 percent higher in August than a year ago, and permits were up 12.5 percent from a year ago.

Historically low interest rates and rising rents have made a home purchase more appealing for those who can afford a down payment and credit standard required by lenders, but housing prices have also risen in much of the country.

Although job growth has been steady over the past five years, wages have remained stagnant, making it harder for people to save for a home or keep up with rising home prices.

The South was the exception to the rule in August and bucked the downward trend in starts that hit the rest of the country. New home construction in the South rose to 590,000, and the highest level since late 2007, which was a 10.1 increase year over year.

Saun Sullivan, chief executive of DSLD Homes, a closely held builder based in Denham Springs, La., reported starting construction of 189 homes in Louisiana, Mississippi and Alabama last month. That is up from 168 a year earlier.

DSLD starting more homes later this year due to the spring’s unusually wet weather across much of the south, which delayed many projects. Even so, DSLD’s construction starts so far this year is 17 percent ahead of its pace at this time last year, but doesn’t foresee DSLD dramatically overshooting its original target of 2,000 home sales for this year.

In Louisiana, they don’t have people waiting in line at model homes like we see in Oahu at affordable home developments like Hoopili, but they still have solid demand. Oil prices haven’t had a dramatic effect yet! But they definitely will cause some headwinds in oil producing states like Louisiana, Texas, North Dakota, and California.

U.S. home builders continue to report a positive outlook, although some voice concerns about a lack of land and construction workers. The National Association of Home Builders’ Confidence Index rose in September to its highest level since November 2005, to a reading of 62, the group said Wednesday. A reading above 50 means most builders generally hold a favorable view of the market for newly built, single-family homes.

In late August, the Commerce Department reported new-home sales in July rose by 5.4 percent to a seasonally adjusted annual rate of 507,000, after unexpectedly sinking in June. Sales of existing homes climbed to their pre-recession pace in July, the National Association of Realtors reported in August. The August existing-home sales figure and new home sales will both be released next week.


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