The Commerce Department recently released figures that show new-home construction reached a four year high in October according to a recent article in Businessweek. New-home starts rose 3.6 percent to an annual rate of 894,000. Eighty two economists predicted an 840,000 pace for new starts.
Experts point to a number of causes. The Federal Reserve is buying $40 billion a month in housing debt to help keep the cost of borrowing down. More individuals are drawn into the real estate market by the historically low mortgage rates. With rates this low, many individuals opt for mortgage payments over higher monthly rent payments. As the market shows additional signs of improvement, potential buyers are less fearful of drastic value drops so they are more willing to take the plunge into home ownership.
The number of foreclosures continues to drop which helps to cut back on the excess supply of available homes on the market. The builders who have managed to survive the last couple of years are primed for success because they can take advantage of bank-owned lots and subdivisions that offer opportunities to buy dirt at discounted prices. In various parts of the country, builders are working with developers to buy neighborhoods that went into foreclosure and then building new homes to sell at prices below what many buyers would expect to pay for a new home. These developers will oftentimes work with banks to offer special financing incentives to help first time buyers who qualify purchase new homes.
The article also points out that additional analysis shows that homebuilder sentiment rose to a six-year high in October.
The total number of applications for building permits dropped in October, however the analysis reflects fewer applications for multifamily construction. Applications for single family units were the ones to reach the highest level since July of 2008.
The article pointed out that two of the four regions of the country showed increases in home starts in October. The West had a 17 percent surge and the Midwest had an 8.9 percent increase in new construction. The Northeast had a 6.5 percent drop and the South a 2.5 percent drop in new construction.
The National Association of Home Builders/Wells Fargo index of builder confidence also showed an increase in November to a six-year high. This same association reports that sales of already built single family homes rose to the highest level since May of 2006.
This blog has truly thrown out lots of numbers and statistics. The general takeaway is that the real estate market continues to show signs of recovery. Previous blog posts pointed out the drop in the foreclosure discount, another sign that the market is improving. Some economists continue to fear that there is a huge shadow inventory of bank-owned properties that have yet to hit the market. The fear is that these homes will eventually flood the market with a fresh crop of bank-owned properties just when the market is improving. That has not happened and banks continue to work more efficiently on short sales thus helping to decrease the number of foreclosures.
Regardless of which report you focus on, it is apparent that foreclosures and short sales will continue to impact the real estate market for years to come, but the increase in new home construction shows that the positive aspects of the market are finally starting to overshadow the negatives.
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