Housing Starts in June

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses housing starts.

• New home construction stubbornly refuses to rise despite an inventory shortage and the fast pace of home sales. Housing starts fell 9.9 percent in June. From one year ago, starts are now up 10.4 percent, but clearly have lost a couple steps since they had been up 30 to 40 percent in most months this year.
• The drop was primarily driven by an undersupply of multifamily units. Single-family home construction was essentially unchanged. Apartment vacancy rates will continue to tighten as a result and renters can expect the slow squeeze of higher rents.
• Housing starts need to rise by at least 50 percent from the current condition to help relieve the housing shortage. If upcoming months are like the latest data then inventory shortage will persist for a longer period and home prices can be expected to rise too fast.
• The big home builders, like KB Homes, Lennar, and Toll Brothers, have access to Wall Street funds via bond and stock issuance. They are building. But the small-sized local private builders are hampered by the difficulties of obtaining construction loans. Excessive regulatory burdens for small-sized local and community banks, which traditionally have funded many of the home builders, are said to prevent construction loans from occurring. The end result is that big guys are smiling while small guys are shut out of the market place. A case of well-intentioned financial regulation gone awry?