Share- New home construction activity in January was notably higher versus one year ago. But the momentum stalled as month-to-month activity fell even after accounting for normal winter seasonal factors. Overall assessment is that new home construction is still woefully inadequate.
- Specifically, housing starts in January reached 1.065 million units (seasonally adjusted annualized rate), a decline from 1.087 million in December, but an increase from 897,000 one year ago.
- The 50-year average on housing starts before the housing market crash was 1.5 million each year. That many new homes are needed to accommodate the rising population and to replace inhabitable homes. For 7 straight years, America has produced less than one million new homes. This great underproduction of homes is the reason for the continuing inventory tightness and should be a major source of concern about future housing shortage.
- The shortage is occurring in the single-family homes. The construction of new apartments (multifamily units) appears to be pretty much back to historical normal. Even so, the rental population has been booming and the apartment vacancy rates have hit historic lows. Therefore, a further boost to multifamily units may be needed as well.
- The months supply of inventory of new and existing single-family homes are at around 5 months. That is too tight and if it persists then home prices will strengthen at an unhealthy pace. Rents are also strengthening too fast. The bottom line is that homebuilders need to get busy. Another 50 percent boost to housing starts is needed to help alleviate inventory shortage.
- As with all economic data, housing starts data are seasonally adjusted. That helps to understand the momentum trends better. But the real world activity is such that in cold regions, like the Midwest, construction is minimal in winter compared to spring and summer. The winter lows tend to be about one-third the activity of summer highs.
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Because construction work is seasonal and not necessarily pleasant, migrant workers are often used in many countries. These workers return home in winter months. That is why there are many babies born in August to November months in countries where migrant construction workers come from.
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