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Housing Starts Poised to Surge

Monday, August 14, 2017

From Builder magazine

Two reports out Tuesday from a pair of research outfits indicate that housing starts may be poised for a big jump.

The first, from Fredonia Focus Reports in Cleveland, predicts that starts will steadily climb to an annual pace of 1.6 million by 2021. The second, from LegalShield in Oklahoma, sees the potential for starts to rise to a pace of 1.4 million by the end of the year.

Starts were at an annual pace of 849,000 in June, according to the most recent report from the Commerce Department.

According to Housing: United States, released by Freedonia, single-unit conventional housing starts, representing both the largest and fastest growing segment, will benefit from rising household creation and an improving economy, amid the preference of many consumers for detached homes and other single-unit types.

It also predicts demand for single-unit housing will be restrained by other housing options, such as manufactured housing, a lower-cost substitute, and the availability of multiple-unit options such as condominiums. Additionally, many young people in urban areas want to live in or near downtown, where space is unlikely to exist for new single-unit housing developments.

The LegalShield Law Index for July suggests that housing construction – which has risen at a stubbornly slow pace since 2012 and remains well below pre-recession levels, despite substantial demand – should pick up in the months ahead.

Meanwhile, as has been the case for the last few months, the LegalShield data point to a downward correction in consumer confidence, which could negatively affect retail sales and other consumer activity in the coming months.

A component of the overall LegalShield Law Index, the LegalShield Housing Activity Index rose 3.9 points to 115.3 in July, driven by improvements in both the foreclosure and real estate components of the Law Index. The Housing Activity Index is up 1.8% for 2017 and is currently at its highest point since May 2006. Housing starts improved in June (as the Index has been signaling for several months) but remain below forecast levels, and year-over-year growth is essentially flat.

The housing market continues to face significant headwinds, including higher prices for inputs (particularly lumber) and regional shortages of both skilled construction labor and land. However, the combination of existing home inventories near historic lows, and nationwide housing prices now exceeding pre-recession levels, should lead to increased housing activity. If the housing supply finally picks up to match current demand, construction investment should rise and housing starts may climb to an annual rate of 1.4 million or more by the end of the year.

“The LegalShield Housing Activity Index has a strong record of closely tracking U.S. housing starts over the last 15 years – and the Index continues to suggest that housing starts should be stronger than they currently are,” said James Rosseau, LegalShield's chief Commercial officer. “The Index is consistent with the fact that U.S. consumers are employed – as underscored by a strong June employment report – with solid credit, manageable debt levels, and heightened confidence about the economy. These factors, combined with historically low home inventories, point to a revival in housing activity.”

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