News Analysis
Construction for nearly 600,000 single-family homes started across America in the six months ending October, the most since 2006 before the Great Recession. That’s up 14 percent from the year before and more than 150 percent from a decade ago, according to data from the federal housing department and Census Bureau.
The construction boom provides a glimmer of hope to prospective home buyers discouraged by rising prices this year.
The median home sold for more than $400,000 in the 3rd quarter, up from less than $340,000 the year before. Prices are still expected to rise, but at a lower rate.
Home construction was decimated during the 2008 crash, dropping to as low as about 40,000 starts a month in 2009. It has steadily grown since then, but never reached the peaks of previous booms of the 1970s, 80s, or 2000s. The industry took off in 2019, spurred partly by low interest rates and palatable lumber prices, but was undercut again by the onset of the COVID-19 pandemic. It has recovered again over the past year and continued to grow.
Construction surged this year despite exorbitant lumber prices over the spring and summer. Lumber futures went from about $420 per 1,000 board feet in January 2019 to nearly $1,700 in May. By late August, they’ve tumbled to less than $500 and have been gaining since, standing at over $700 on Nov. 17.
Buyers have been able to afford more thanks to extremely low interest rates this year and the last. But those may not last. The Federal Reserve has signaled it will slow down its asset purchases, which puts upward pressure on rates. Also, worries about the impact of the ills within the Chinese real estate market has boosted demand for bonds, which are seen as safer. Mortgage rates tend to go up on such movements because lenders try to make mortgage-backed securities more attractive to investors to compete with bonds.
Prospective home buyers also need to compete with cash-flush investors who’ve snatched up nearly a fifth of all homes sold in the 3rd quarter.
Meanwhile, rent for single-family homes has hiked more than 10 percent in the 12 months through September—the fastest increase in 16 years, according to CoreLogic, a business analytics and intelligence firm.
A record of about 16,000 single-family homes built to be rented out rather than sold to residents started construction in the 3rd quarter, the National Association of Home Builders reported. Such homes represented about 4 percent of single-family home starts in that time period.
