Trulia’s Chief Economist, Selma Hepp, dug deeper beyond the top-line numbers in the June housing starts and permits, and she drew some compelling conclusions and questions about where things are going in the second half of 2015.
Hepp notes that while housing starts and permits have been volatile, the strong rebound following the winter months lull, along with other recent data reads, suggests we this will be the best year for housing market since the recovery began.
In June, housing starts increased a strong 9.8 % versus May’s jump and were 26.6% higher than June 2014 reading. Permits also posted a strong, healthy jump of 7.4% to 1.343 million, after again up upward revision for May.
“Even with weak beginning to 2015, both readings are solidly ahead of 2014 through June and would point to solid health for residential construction for the rest of the year,” Hepp says.
She came up with 6 key takeaways:
1. Single-family starts continued to move sideways and are still at less than a half of their historical average. Large increase in today’s readings will help ease tight inventories of new homes, and home price pressures. However, completions still have a lot of room to catch up with starts indicating there will be more inventory coming on, but today’s strong increase of 22% suggest completions are coming on healthy.
2. Strong multi-family annual growth surprises a little as many experts anticipated slowing in 5+ units component, but simply confirm strong need for more units on the market in general. Strong builder confidence released earlier this week was an early indication we may see continued strong numbers.
3. While the multi-family market persists to bully through, there are some early signs that the apartment market may be peaking. The Architecture Billings Index for multifamily residential projects continued to fall for four consecutive months. Still, there are already numerous projects in the pipeline, and given the strength in permits so far, multifamily starts are anticipated to finish on a high note in 2015. The majority of projects continue to focus on the rental market, and are generally located in urban areas.
4. There is a need for more for-sale multi-family units however hesitations around construction defects laws seem to be holding builders in the apartment space. However, building apartment units to condo specifications, i.e. higher end apartments, may be contributing to increasing rental prices in some key markets, such as Denver, San Francisco and Los Angeles.
5. Strong job growth and increased household formation among millennials will keep demand constant over the coming years, and developers interested in continuing to focus on the apartment market. Household formation may be changing in favor of homeownership as millenials finally start forming their own families and having children (as evident by increase in the birth rate in the U.S.)
6. Also, in a separate report yesterday on homebuilder confidence for newly built, single-family homes, NAHB showed the index reaching the level of 60, highest level since November 2005. High confidence among builders bode well for construction going forward. Other construction indicators, including construction spending, new home market, suggest we may be on the path to the best year in housing recovery.