Unexpected surge in Initial Construction of U.S. Homes

by Coldwell Banker Evergreen Olympic Realty, Inc. on March 18, 2009

This news report just in from Real Trends
“Initial construction of U.S. homes unexpectedly surged in February, according to a government report released Tuesday. Housing starts rose to a seasonally adjusted annual rate of 583,000 last month, up 22% from a revised 477,000 in January, according to the Commerce Department. Economists were expecting housing starts to decline to 450,000, according to consensus estimates compiled by Briefing.com.
“Applications for building permits, considered a reliable sign of future construction activity, rose 3% to a seasonally adjusted annual rate of 547,000 last month. Economists were expecting permits to fall to 500,000.”Source: CNNMoney.com

Our commentary about this story and new construction in Thurston County:
The jump in construction activity around the country is one of many signs that the nation’s housing market is starting to improve in many regions. Most of the hardest hit states have been down for several years now. As those markets retreated, so did the level of construction activity. As prices came back to earth, more and more inventory was gobbled up. Sales in California this year are up 100% over last year due to the increase in affordability.To be sure, one month does not a trend make. There is still a lot of oversupply in most regions of the country. However, as prices become more affordable, the trends show that the buyers come back. Getting back to these sustainable levels of price appreciation is an important step in the long-term health of the housing market.Locally, housing starts are still down considerably from last year, but that is just fine. The amount of inventory grew to levels well beyond that supported by demand. Many builders have reduced pricing and eased up on building to bring better balance back to that segment of the market.

In February we reported that going forward the supply picture looks even better. Permits issued for new homes have dropped 54% from the peak in 2006. That year, 2,386 permits were issued throughout the county. In 2008, only 1,194 permits were issued. This drop in construction will be one of the factors that helps bring us back to a place of more normal, sustainable price appreciation.

In fact, we are seeing a lot of the new construction inventory being absorbed, with 28% of the home sales falling in the new construction category. Home prices are more affordable now that at any time during the past five years, and that is bringing up the level of demand in our market. The moderation of supply combined with the current pricing trends should lead to continued market improvement as the year moves on.

Statistics compiled by Coldwell Banker Evergreen Olympic Realty, Inc. from the NWMLS database. Statistics not compiled or published by NWMLS.

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