A big jump in apartment construction in the Midwest and South boosted the pace of homebuilding in November, marking a solid bounce back after tumbling in October. Construction of single-family houses also increased and reached an eight-year high.
The Commerce Department said Dec. 16 that total housing starts — both houses and apartments— climbed 10.5 last month to a seasonally adjusted annual rate of 1.17 million homes. The increase reversed much of drop in stars during October.
There has been a sharp growth in homebuilding, with starts having increased 11 percent so far this year. Solid hiring over the past two years and relatively low interest rates have buoyed the real estate market, encouraging more people to upgrade to two new houses and sign rental leases.
Single-family house construction rose 7.6 percent last month to 768,000, the best reading since January 2008. The building of multi-family complexes, primarily apartments, advanced 18.1 percent.
The gains appear likely to continue over the next few months. Building permits rose 11 percent in November to an annual rate of 1.29 million, with almost all of the increase coming from apartments. The additional permits suggest newfound momentum in construction after a choppy few months where growth appeared to be stalling.
“An upward trend in total housing construction appears to be re-emerging, following the slowdown in the summer,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Still, construction is recovering from the depths of the Great Recession as starts remain short of the 1.5 million rate that housing sector analysts associate with a healthy market.
Michelle Meyer, an economist at Bank of America Merrill Lynch, estimates that housing starts will average 1.28 million in 2016 and 1.4 million in 2017. Fueling the gains will be millennials graduating college and leaving their parents’ homes for rentals, while a share of owners upgrade to new houses.
New construction has increasingly focused on higher-end buyers and renters, doing little to alleviate the price pressures faced by many Americans. The median rent on a newly built apartment was $1,372 a month in 2014, about $500 more a month than what about half of renters could afford without being financially burdened, according to a recent analysis by Harvard University’s Joint Center for Housing Studies.
New homes sold for a median price of $281,500 in October, according to the Commerce Department. That represents a $61,900 premium on the median sales price for an existing home, according to the National Association of Realtors.
Builders are confident that demand from buyers will remain robust, although the view of the market has dimmed over the past three months.
The National Association of Home Builders/Wells Fargo builder sentiment index released Dec. 15 slipped in December to 61, the second straight monthly decline.
Readings above 50 indicate more builders view sales conditions as good, rather than poor. The index has been consistently above 50 since July last year, although it has been below that critical threshold in the Northeast for much of 2015.