Will There Be Increased New Housing Starts?

With the economy and housing market having taken such a battering in recent months, it's hardly a surprise that housing starts are down. In July, housing starts were at 546,000 at an annual rate, which is less than the 560,000 median estimate.

Much of this could be attributed to coming out of the first time home buyer tax credit period, where incentives to purchase bought forward demand from later in the year. Moreover, the foreclosure rate being at an all time high means that more existing properties are becoming vacant, increasing inventory which in turn reduces the need for new houses to be constructed.

The immediate future for housing starts doesn’t look particularly promising either as applications for building permits dropped in July 2010 to their lowest level since May 2009. Obviously, applications for building permits offer a rather clear indicator of future projects, with these stats clearly indicating that there's less demand for new homes than before.

Of course though individuals always require somewhere to live, whether they are renting or buying and as the population increases steadily, so will the demand for new homes. This is demonstrated well by one particular statistic, which indicates that work on buildings which house multiple families, like apartment buildings and town-houses, increased by a huge 33% during the same period. This clearly indicates that fewer persons are deciding on owning an actual house and instead, move into more affordable accommodation, possibly with many of them choosing to rent.

Government incentives to assist homeowners who are struggling to satisfy their financial commitments as a result of loss in income may well help the market by keeping potential foreclosures out of the market place. It's possible that the reason for the drop in building permits is due to the number of home owners who are defaulting on their property loans is at an all time high at present. These statistics may be somewhat exaggerated though since it might be a situation of lenders postponing foreclosure in order to follow alternatives like short sales or the Home Affordable Modification Program. If this is the case then we may even see a rise in the number of house starts as the market looks to compensate for previously overly negative statistics.

The number of multifamily homes though could certainly represent a shift in public sentiment towards the value of being a homeowner as more and more individuals decide that it might be in their best interests to rent or go for a more affordable property such as an apartment. Alternatively, it might simply be an indicator that several individuals are merely not in the position to buy a home at the moment and are looking to wait instead. It is even possible that these individuals might have recently lost a property because of the recent crisis and even some potential first time buyers may be unable to meet the now stricter requirements expected to qualify for a home loan.

If people are selecting against buying their own home, or are simply finding that they are not eligible then this won't be good for the house building trade. Though, it could just be a case of individuals waiting till after the economy has recovered fully, and we’re almost certain to witness an increase in sales when the subsequent first time home buyer tax credit period arrives.
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