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Will Setbacks Derail the Homebuilding Recovery?

Despite some obstacles in the homebuilding recovery and ""three consecutive monthly declines"":https://themreport.com/articles/weak-prices-drop-builder-confidence-for-3rd-straight-month-2013-04-15 in the ""National Association of Home Builder's"":http://www.nahb.org/ homebuilder confidence index, ""Capital Economics"":https://www.capitaleconomics.com/ remains largely optimistic about the homebuilding rebound.

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The analytics firm is sticking with its previous prediction that housing starts will reach about 1 million this year and 1.3 million next year.

The 7 percent increase in housing starts ""experienced in March"":https://themreport.com/articles/multi-family-boosts-march-housing-starts-permits-slip-2013-04-16 is the result of a 31 percent monthly increase in multifamily housing, which is ""prompting talk of a bubble in multi-family construction."" Meanwhile, starts in the single-family sector declined 4.8 percent.

Building permits, which generally serve as a predictor of construction starts, decreased 3.9 percent in March, making Capital Economics ""almost certain that starts will drop back in April.""

Rising construction costs is one hindrance to the homebuilding recovery. The cost of lumber has increased 60 percent since January 2012, according to Capital Economics.

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This increase is the result of a combination of factors leading to tight supply, including a pine beetle epidemic plaguing Canada's lumber industry, rising demand from China, and a slowdown in production in North America resulting from low demand during the economic downturn.

In fact, the lumber industry in North America is producing its lowest levels of output since the 1980s, according to Capital Economics.

Recent home price increases should help mitigate the effects of rising construction costs, however, according to the economists at Capital Economics.

Another concern heard from economists and industry participants is that the construction rebound has thus far been ""essentially jobless."" However, Capital Economics reminds those concerned that ""construction employment has always lagged homebuilding volumes.""

Over the past two months 32,000 new hires have been added to construction payrolls, and Capital Economics sees this as ""a sign of things to come.""

In fact, Capital Economics predicts residential construction employment will be a ""key driver"" of rising employment over the next year.

While admitting the homebuilding recovery is experiencing some ""thorns in its side,"" Capital Economics says, ""what seems to have been missed by many commentators is that rather than simply being exogenous constraints on the homebuilding rebound, rising prices and supply bottleneck for materials, labour and land are also all reflections of the strength of the recovery.""

About Author: Krista Franks Brock

Krista Franks Brock is a professional writer and editor who has covered the mortgage banking and default servicing sectors since 2011. Previously, she served as managing editor of DS News and Southern Distinction, a regional lifestyle publication. Her work has appeared in a variety of print and online publications, including Consumers Digest, Dallas Style and Design, DS News and DSNews.com, MReport and theMReport.com. She holds degrees in journalism and art from the University of Georgia.
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