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Housing Inventory and Increasing Construction

Housing starts were up in August, according to the latest Housing Starts Survey from the U.S. Census Bureau [1]. According to the Survey, privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,282,000, 9.2 percent above the revised July estimate of 1,174,000 and 9.4 percent above the August 2017 rate of 1,172,000.

The Census Bureau found that despite the increase in construction starts in August, now privately-owned building permits fell,  5.7 percent month over month to a seasonally adjusted annual rate of 1,229,000, and down 5.5 percent year over year from 1,300,000 in August 2017. Despite this, First American [2] Chief Economist Mark Fleming stated that the increase in starts is enough to indicate a strong market.

“The growth in housing starts is welcome news after two consecutive monthly declines,” said Fleming.

Fleming added: “The continued year-over-year growth in completions means more homes on the market in the short-term, offering some immediate relief in alleviating housing supply shortages.”

What worries Realtor.com [3] Chief Economist Danielle Hale is the increase in multifamily construction, leaving single-family construction behind.

“Although the jump in starts is good news for the overall economy because multi-family construction will boost GDP and provide jobs and incomes to the builders, the overwhelming majority of multi-family construction is built for rent,” said Hale. “It will offer no relief to the inventory-starved home buying market and could exacerbate the trend of renting becoming more affordable than owning. Without entry-level single-family home construction, millennials will continue to lag behind other generations in their ownership rate and experience a delay in the wealth building that comes from homeownership.”

With increases in construction in mind, Fleming also noted the impact of Hurricane Florence on construction, not only in repairing the damage but on the labor force.

“Due to the impacts of Hurricane Florence, we expect to see a dip in the number of permits, starts, and completions in the next few months, particularly in the South,” said Fleming. “But hurricanes are not only detrimental to existing homes; they have significant impacts on the labor force. Research has found that average labor costs increased 10 percent following Hurricane Katrina in the three metro areas surrounding New Orleans 1.5 years after the storm. As recovery efforts ramp up, the existing shortage of construction workers will be felt all the more keenly, likely presenting a challenge to rebuilding efforts and further limiting the pace of new home construction”