New Home Starts Fall in November

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New Home Starts Fall in November
| published December 16, 2014 |

By Thursday Review staff


Two steps forward, one step backward: that would be one way to describe the real estate markets and home construction in the United States in the long period after the Great Recession decimated home values and crippled new construction beginning in 2008.

According to the U.S. Commerce Department, which released its latest figures this week in Washington, housing starts fell by about 1.6 percent in November—a slight setback from the gains of September and October. And where the biggest gains had been in the south and southwest in those earlier months, with slumps in the Midwest and Northeast, the numbers reversed in November, as the South saw its first big decline in many months.

Sales of existing homes and new home starts are closely watched by economists and business analysts. Both sets of economic activity are considered central to an economy’s overall health—good or bad. Home sales have been on the increase—generally speaking—for about two years, peaking in mid-2013 with what appeared to a big burst of activity which spurred many economists to say that recession was finally over. But then, in late 2013 and early 2014, sales dipped again.

Home starts, which are measured by the Commerce Department using a variety of tools and data—including the official number of building and construction permits requested in counties and states—are also seen as an important indicator of the economy’s health. New home construction is a driver of both employment and wholesale and retail sales; home construction creates demand for skilled labor in scores of fields (carpentry, framing, roofing, electrical, plumbing, delivery), and generates additional demand for materials and supplies. Home construction also spurs new tax collection for local governments.

Some economists suggest that the November downturn is strictly limited to the season, and any analysts suggest that lower gas prices will inevitably push pent-up demand back to the forefront in early 2015. Assuming that the U.S. does not experience another severe winter like last year—a prolonged period of extreme conditions which suppressed nearly all new construction between early January and early March—many analysts in the housing industry expect new home starts to accelerate again in early spring 2015. November’s drop in construction (and sales of existing homes) may also have been the result of a colder-than-average month; many parts of the Midwest, Plains States, and Northeast were—in fact—faced with weather conditions similar to last year’s powerful cycle of Polar Vortex and heavy snows.

Lower gas prices have given many Americans more disposable income, but perhaps not enough, according to some analysts, to spur immediate demand for new homes. Instead, retailers hope to pick up the lion’s share of that extra cash between now and Christmas Day.

In the meantime, construction of multi-family dwellings (apartments and condominiums) increased by about 6.7 percent in November. Though this still reflects an uptick in construction and builder-related employment, it reveals continuing weaknesses in some home buyers’ ability to finance new homes.

Related Thursday Review articles:

Sales of New Homes on the Rise; Thursday Review staff; September 25, 2014.