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Will Construction Activity Encourage Homeownership?

Construction activity for the month of January shows an increase in building permits and housing completions, which is good news for new homebuyers. However, housing starts are having a difficult time picking up speed, according to residential construction data released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD).

Privately owned housing starts saw a 2.6 percent decline from December to last month, but is 10.5 percent above the January 2016 rate of 1.12 million. Starts on buildings with five or more units was at 446,000.

Housing completions also showed a 5.6 percent decrease from December, with privately owned completions declining from 1.1 million to one million. Completions on buildings with five-plus units was at 244,000.

Despite declines in the aforementioned areas, building permit activity has seen a 4.6 percent jump for privately owned housing permits, rising from 1,228,000 million in December to 1,285,000. There was also a .4 percent increase in permits for buildings with five or more units, with a jump from 1.182 million to 1.186 million. Single-family building permits were also up, rising 4.7 percent month-over-month.

Ralph McLaughlin, Chief Economist for Trulia, said that the increase in permits is great for potential homebuyers who are in areas with sparse inventory.

“The big uptick in permits should be good news for inventory-constrained homebuyers, as permits eventually become starts, which in turn become new homes for sale,” he said. “As a result, we shouldn’t be surprised to see a strong uptick in starts in mid-2017.”

A rise in single-family starts was detected, with a 1.9 percent increase since December 2016, bringing the number from 808,000 to 823,000.

Marc Walco, PwC’s U.S. Engineering & Construction Advisory Leader at PwC, believes that the data “represents a continued sign of strength and optimism in the housing sector.”

“As we begin the spring selling season, we have yet to see any material housing policy impacts from the Trump administration, however builders remain hopeful that President Trump's pro-business approach could translate to a reduction in regulations on home builders, and an easing of credit requirements for home buyers,” he said. “Without any action we expect affordability concerns to increase as the combination of a rising interest rate environment along with a continued gap in supply and demand of new entry level housing forces some potential buyers to remain on the sideline.  We are also watching how the immigration policy plays out, as it could impact an already tight labor supply for builders.”

About Author: Aly J. Yale

Aly J. Yale is a freelance writer and editor based in Fort Worth, Texas. She has worked for various newspapers, magazines, and publications across the nation, including The Dallas Morning News and Addison Magazine. She has also worked with both the Five Star Institute and REO Red Book, as well as various other mortgage industry clients on content strategy, blogging, marketing, and more.

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