The building of new homes across the U.S. increased 9.7 percent in January. This news is welcomed as the residential real estate market continues to deal with a shortage of for sale inventory.
The Commerce Department recently stated that new home construction totaled 1.33 million year-over-year in January of this year, up from 1.21 million in December 2017 and 1.24 million in January 2017. Construction of single-family homes increased 3.7 percent. Construction of apartments and condominiums increased by a dramatic 19.7 percent, the highest increase since December 2016.
Divided by region, home construction increased by 45.5 percent in the Northeast, increased by 10.7 percent in the West and increased by 9.3 percent in the South. In the Midwest, home construction decreased by 10.2 percent. Building permits, a key indicator of future home construction, increased by 7.4 percent in January.
A strong economy has given Americans the confidence to buy homes. Despite this increase in new home construction, builders have yet to meet the high demand. A shortage of homes on the market has driven up prices and blunted sales in some areas. Southwest Florida sales are still up for January, but prices have shown slight increases in some parts of the market.
Mortgage rates are slightly and gradually increasing, but builders remain optimistic about the outlook for housing. The National Association of Home Builders/Wells Fargo builder sentiment index released recently was at 72 for February, which is just shy of the 18-year high for optimism recorded in December 2017. Readings above 50 indicate more builders see sales conditions as good versus poor. This index has been above 60 since September 2016.
Builder confidence in the single-family 55+ housing market reached a nine-year high in the fourth quarter of 2017, which is the highest reading since the National Association of Home Builders (NAHB) created the index in 2008. The index increased to 71 in the last three months of 2017, up 12 points from the previous quarter, according to the NAHB 55+ Housing Market Index (HMI).
“Builders and developers in the 55+ housing market are reporting a strong demand across the country,” says Chuck Ellison, Chairman of NAHB’s 55+ Housing Industry Council. “However, regulations in some parts of the country can make it challenging to meet the demand,” Ellison adds.
“The strong performance of the 55+ HMI at the end of 2017 is consistent with recent increases in broader measures of the housing market, including the NAHB/Wells Fargo HMI,” says NAHB Chief Economist Robert Dietz. “We expect continued growth in the market for new 55+ housing in 2018 due to favorable demographics, rising homeowner wealth and the current tight supply of existing homes on the market.”
This particular area of high demand is important for Southwest Florida and the Sunshine State as a whole, as the state has long been the location of choice for retirees.
Even with the increases in new home building and high demand, new homebuilding is still not keeping up with demand in many markets and failing to alleviate the shrinking inventories of homes for sale. Builders place the blame of the construction shortfall on several factors, according to the National Association of Home Builders (NAHB) and Wells Fargo Housing Market Index:
- Cost/availability of labor: 84%
- Building material prices: 84%
- Cost/availability of developed lots: 62%
- Impact/hook up/inspection or other fees: 60%
- Local/state environment regulations and policies: 45%
- Inaccurate appraisals: 42%
- Federal environment regulations and policies: 42%
- Difficulty obtaining zoning/permit approval: 42%
- Gridlock/uncertainty in Washington making buyers cautious: 42%
- Development standards: 38%