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Real Estate

Housing starts see greatest leap in nearly a decade

Thank you, Millennials

New home construction broke its downward trend and increased significantly in October, according to a new report from the U.S. Census Bureau.

“Housing starts jumped in October – climbing to the strongest pace since 2007 – as multifamily units bounced back sharply from an unusual (and temporary) decline during September,” Nationwide Chief Economist David Berson said. “Single family starts continued their rise as well, as strong demand for owner-occupied housing spurs home construction activity.”

Privately-owned housing starts increased 25.5% in October, up from September’s revised estimate of 1.05 million to 1.32 million. This is also up 23.3% from last year’s 1.07 million.

Single-family housing starts increased 10.7% from September’s 785,000 to 869,000 in October.

But why the sudden increase? Millennials.

“Housing starts are being driven higher by improved household growth as the economy promotes further job and income gains,” Berson said. “With improved employment and income prospects, millennials are an expanding portion of housing demand as they move out of their parents’ homes – increasingly to form families.”

While Millennials haven’t completely taken over the housing market yet, click here to see why it’s only a matter of time.

The number of building permits also increased in October. Privately-owned housing units authorized by building permits increased 0.3% in October to 1.229 million. This is up from September’s 1.225 million, and up 4.6% from last year’s 1.18 million.

Of those, single-family authorizations increase 2.7% from September’s 742,000 to 762,000 in October.

With these increases, it is no wonder that builder confidence remained high in November, according to the National Association of Home Builders/Wells Fargo Housing Market Index.

“Today’s report is a boost of confidence for the housing market, as we haven’t seen a month-to-month leap like this in more than 30 years,” Quicken Loans Vice President Bill Banfield said. “While much of this was driven by the multifamily segment, we cannot overlook the significance of the gains made on single-family home construction – increasing to their highest levels in nine years.”

This chart from Investing.com demostrates that this month had the highest month-over-month increase since 1982: 

Click to Enlarge

home start

(Source: Investing.com, U.S. Department of Commerce)

“Furthermore, continued gains in permits led by the single-family sector keep optimism high as we move toward the winter months,” Banfield said.

Privately-owned housing completions also increased in October by 5.5% from September’s 1 million to 1.05 million. This is up 7.2% from last year’s 984,000.

Single-family housing completions increased 3.9% from 721,000 in September to 749,000 in October.

But while these numbers may look great, one expert warns that the market still has a lot of room for growth.

“Controlling for the number of household in the U.S., housing starts are only about 66% of their 50-year average,” Trulia Chief Economist Ralph McLaughlin said. “Clearly, the homebuilding sector represents an industry that has potential to grow under a Trump stimulus plan.”

“A big question heading into 2017 is how homebuilders will fare under a Trump administration,” McLaughlin said. “While we think some of his broader economic policies might hurt builders, such as immigration and trade policies that could restrict both labor supply and raw materials, we also think he’ll likely implement builder-friendly policies, such as infrastructure stimulus and financial sector reform.”

The construction sector shows the second-highest number of undocumented workers at 1.1 million. Trump’s deportation plans for these illegal immigrants could have grave consequences to the construction industry.

“President-Elect Trump could implement a number of policies to help push the number of starts toward their historical average, but there’s a long way to go,” McLaughlin said. “Though Mr. Trump as discussed demand-side policies that would ease mortgage lending, such as Dodd-Frank reform, we encourage the President-Elect to also focus on supply-side policies given inventory shortages across the country.”

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