Latest Housing Starts – August 2014

  • Disappointingly, housing starts fell measurably in August. Homebuilder confidence had risen to a 9-year high but that is not being matched by what is actually happening on the ground. The current pace of new home construction is woefully low – only about 60 percent of the norm. If new home construction activity does not pick up sizably in the upcoming months then the housing market will again encounter an inventory shortage when the spring buying season returns next year.
  • Housing starts in August were 956,000, down 14 percent from July. It is nowhere close to the 50-year average of 1.5 million a year. A large dip in multifamily starts was the reason for the overall decline. Single-family housing starts were steady but well below normal.
  • Though inventory of homes for sale and the related months’ supply have been rising recently, the situation could revert back to tight inventory conditions by early next year if housing starts do not pick up. Ideally, housing starts should rise by 50 percent soon.
  • The overall inventory needs to rise further to smooth out the market. That’s because consumers like to view 10 to 15 homes before deciding. Too few inventory leads to unenthusiastic home buyers and fewer home sales.
  • Two big reasons for the persistent slow recovery in new home construction are the difficulty of obtaining construction loans and the construction labor shortage. Construction jobs pay good salaries yet builders are having difficulty finding skilled workers. For comparison, the average construction worker’s weekly earning was $1,044 while that of retail trade workers was $534.
  • As mentioned above the long-term average for housing starts is 1.5 million per year. There is an economic logic behind the number. Generally there are about 1.2 million new households formed each year in the U.S. In addition, about 300,000 uninhabitable homes are demolished every year. Therefore, 1.5 million new housing units are needed to accommodate new households and to replace demolished units.
  • Rarely does a well functioning home get demolished. Once in Finland, however, many good homes were strategically burned to the ground when the Soviet Army invaded the country in deep winter. What was surprising to the Finnish soldiers who arrived with matches was that many homeowners had left their homes in sparklingly clean conditions. When asked why, the homeowners said they wanted to honor the last visitors to their homes: the Finnish soldiers. Economic logic would say the cleaning of the homes was wasted energy, but human emotional logic says otherwise. The homeowners wanted the very last image of their homes to be a positive and lasting one. That is, the last impression is just as important as the first impression.


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