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Will Homebuilding Uptick Solve Supply Problems?

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Home builders may be a little hesitant in the confidence arena but despite the lack belief in the market, they do appear to be building more homes in the U.S. This rebound in homebuilding is expected to continue throughout the year, but will it solve persistent inventory issues?

Wells Fargo 2016 Housing Market Outlook by Mark Vitner, Managing Director and Senior Economist and Anika Khan, Managing Director and Senior Economist said that homebuilding is expected to experience a "gradual recovery."

"Single-family construction has been slow to come back on track with long-held norms relative to population and employment growth," the report stated. "We look for stronger gains this year, but improvement will remain excruciatingly slow."

Confidence among home builders has been on a series of ups and downs over the last few months, showing slow, but continued progression in the single-family sector, but they are still faced with concerns about labor and lot shortages.

Home builder confidence in the market for newly-built single-family homes was flat for the month of March at 58, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

“Confidence levels are hovering above the 50-point mid-range, indicating that the single-family market continues to make slow but steady progress,” said NAHB Chairman Ed Brady, a home builder and developer from Bloomington, Illinois.  “However, builders continue to report problems regarding a shortage of lots and labor.”

On the other hand, home building rebounded this month with a surge in single-family home construction, inducing starts, permits, and completions, signaling newfound confidence in the housing market and economy.

The U.S. Census Bureau and the HUD on Wednesday jointly released new residential construction statistics for February 2016, which showed single-family housing starts bounced back more than expected in February to their highest level in five months, led by a the largest jump in single-family units in nine years.

According to the data, February's housing starts rose 5.2 percent to an annual rate of 1,178,000, compared to January's estimate of 1,120,000. Year-over-year housing starts experienced major gains, rising 30.9 percent compared to the February 2015 rate of 900,000. Overall starts have not been this high since September 2015 when the figure was 1,207,000.

Housing Starts (000s)

Source: NAHB

On the singe-family side, housing starts were at a rate of 822,000 in February, up 7.2 percent from the revised January figure of 767,000. Single-family starts have not been this high since November 2007 when they were at 833,000.

"The very positive single-family report further supports other housing and general economic reports that the housing recovery continues unabated," said David Crowe, National Association of Home Builders Chief Economist and SVP. "Low mortgage rates, increases in employment, continued US economic expansion and growing pent up demand particularly among existing home owners are supporting more single-family home building."

The Wells Fargo report noted that housing supply remains an issue across the U.S. Many recent reports have indicated that although home building is slowly improving, it is not enough to offset the pent up demand among buyers, therefore causing a shortage inventory. According to the data, inventory levels remain exceptionally tight, particularly for starter and trade-up homes.

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