Builders broke ground on fewer houses and apartment complexes in August, a possible sign that the housing market may be levelling off after accelerating for much of the year.
Housing starts last month fell 3 percent to a seasonally adjusted annual rate of 1.13 million homes, the Commerce Department said Sept. 17. Construction activity slowed sharply in the Northeast and Midwest last month, edged downward in the West and climbed in the South.
Still, homebuilding appears much stronger than a year ago, despite figures that can be highly volatile on a monthly basis. Construction slowed in part due to the expiration of tax incentives for developers in New York.
“This is a mere blip on the radar,” said Tom Wind, executive vice president of home lending at EverBank. “The housing market’s underlying fundamentals remain on pace for continued recovery.”
Housing starts have climbed a solid 11.3 percent this year to date. Steady job gains of 2.9 million in the past 12 months are contributing to increased demand from buyers and renters. And as the recovery from the Great Recession has entered its seventh year, residential construction has stated to both reflect and fuel broader economic growth.
Developers see favorable demographics helping to sustain demand, as approved permits rose 3.5 percent in August to an annual rate of 1.17 million.
Confidence among builders is also improving.
The National Association of Home Builders/Wells Fargo builder sentiment index released Sept. 16 rose this month to 62, up from 61 in August. The last time the reading was higher was October 2005 at 68.
New construction has yet to fully satisfy demand, a sign that further building will likely remain profitable.
Only 5.2 months’ supply of new homes is listed for sale, well below the standard level of six months usually seen in a healthy market. This shortage has led to rising prices for new and existing homes.
At the same time, median rental prices are rising annually at 4.2 percent — roughly double the increase in average hourly wages — because of an influx of downsizing baby boomers and millennials entering the job market.
The rental demand is coming in part because the United States will add the equivalent of Illinois’ population — 12.9 million people — to the housing market in the next five years, said Robert Hart, chief executive of TruAmerica, a Los Angeles-based firm that renovates and manages apartment buildings.
As younger Americans are entering the housing market, they’re renting longer before buying, held back by student debt and a lack of down payment savings. The share of the country owning homes has tumbled to 63.4 percent, the lowest level in 48 years.
“People are delaying ownership until they’re on a more solid ground — personally and professionally,” Hart said.
But there are also signs of limits to how far housing activity can expand.
The lack of supply has caused prices to shoot up in many of the largest job markets, reducing affordability for potential buyers and renters. And sales at furnishers and building supply stores fell in August after posting gains over the past 12 months, the government reported Sept. 15.