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Browsing Posts tagged Building Permits

Housing Starts (Nov 2008-Oct 2010)Newspaper stories can be misleading sometimes — especially with respect to real estate. We saw a terrific example of this Wednesday.

A “Housing Start” is a privately-owned home on which construction has started and, according to the Commerce Department’s October 2010 data, Housing Starts data dropped by nearly 12 percent as compared to September.

The media jumped on the story, and its negative implications for the housing market overall.

A sampling of the headlines included:

  • Housing Starts Plunge: Market’s ‘Pulse is Faint’ (WSJ)
  • Housing Starts Tumble (Reuters)
  • Housing Starts Sink 11.7 Percent In October (NPR)

Although factually correct, the headlines are misleading. Yes, Housing Starts fell sharply in October, but if we strip out the volatile “5 or more units” portion of the data — a grouping that includes apartment buildings and condominiums — Housing Starts only fell 1 percent.

That’s a big difference. Especially because most new construction buyers around the country don’t purchase entire condo buildings. They buy single-family residences.

As an illustration, 84% of October’s Housing Starts were single-family homes. The remaining starts were multi-units.

This is why the headlines don’t tell the whole story. The market that matters most to buyers — the single-family market — gets completely glossed over. The Housing Starts reading wasn’t nearly as awful as the papers would have you believe.  Furthermore, it’s never mentioned that single-family Housing Permits climbed 1 percent last month, either.

According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance. Therefore, we can expect December’s starts to be higher, too.

New Home Supply August 2009 - August 2010Well, new home sales are not rebounding.  Existing home sales are.   Go figure.  There is enough inventory out there that it doesn’t make financial sense to build new houses if you are building on spec.    This is why we are not funding spec construction.  Read on…..  It may be good news still if you are in the market for a new home to purchase for yourself.  From Thanksgiving to New Years is a great time to make offers.

Existing Home Sales rebounded last month after a lackluster July. New Home Sales data, by contrast, did not.

After an upward revision to July’s data, New Home Sales remained unchanged at 288,000 units in August. It marks the second-lowest number of units sold in a month since 1963, the year government started its record-keeping.

At the current pace of sales, the newly-built home inventory would be depleted in 8.6 months.

The August New Home Sales was weaker-than-expected, but both Wall Street investors and Main Street economists are shrugging it off. The numbers were foreshadowed by weakening housing figures from earlier this summer.

For example:

  1. Building Permits dropped between March and June
  2. Housing Starts dropped between April and July
  3. Homebuilder confidence continues to sag

Together, these three data points suggest that the market for new homes will be soft through at least this month.

With New Home Sales fading and colder months ahead, it may be an opportune time for home buyers to look at new construction. Builders are eager to move inventory and the cost of materials remains low.

Buying “new” may never be cheaper — especially with mortgage rates as low as they are. The 0.750 percent drop in rates since January has shaved $188 off of a $200,000 mortgage’s monthly cost. That’s $2,250 per year in savings.

As home supplies dwindle and mortgage rates rise, finding “great deals” in new construction will undoubtedly get tougher. Take advantage of today’s market conditions, combined with builder pessimism. It may be the right combination at the right time to get that new home for cheap.

New Home Supply July 2009 - July 2010What does this mean to you, the real estate investor?  Well, if you are a rehabber, it means your end buyer can buy a brand new home almost as inexpensively as that rehab that you just finished.  So you have to price accordingly.  To do that, you have to buy it right to start with.  Read on for more about New Home Sales….

One day after the National Association of Realtors released the softest Existing Home Sales report since 1995, the U.S. Census Bureau released a similarly-weak New Home Sales report.

Americans bought just 276,000 newly-built homes in July. That marks the fewest units sold since the government started keeping records in 1963.

In addition, although new home inventory actually dropped 2,000 units in July, the slowing sales pace still managed to push the national supply higher by 1.1 months.  At July’s rate of sales, the nation’s new home inventory would be exhausted in just about 9 months.

None of this news should surprise you, though. It’s all been foreshadowed for weeks.

First, Single-Family Housing Starts have dropped in every month since April.  A “housing start” is a when a home starts construction and, because fewer homes are under construction, we should expect fewer homes to be sold.

Second, Building Permits are down.  The number of new permits peaked in March and have fallen 23 percent since.

And, lastly, home builder confidence ranks at its lowest levels since early-2009. A contributing factor in that pessimism is dwindling buyer foot traffic.

Regardless, there’s two sides to the story. Although the New Home Sales data looks bad for builders, it can be terrific  for home buyers. This is because new homes are more likely to be discounted when the sales cycle favors buyers.

Coupled with ultra-low mortgage rates, the cost of buying a newly-built home may have just become cheaper.