Homebuilding Is Hot Again. And Not Nearly Hot Enough
New residential construction rose to a nine-year high in October, according to census data published today. Builders started new homes at an annualized rate of 1.32 million, the most since August 2007 and the largest month-over-month increase since July 1982. That's good news for a housing market struggling with low inventory in recent years, driving up prices and forcing prospective buyers to delay purchases, even as the vaunted millennials age into their prime homebuying years.
The less-good new is that there's still a long way to go.
The chart tells a familiar story. Construction of new single-family homes spiked in the early 2000s, then plummeted when the housing market collapsed. Despite the recent recovery, homebuilders have yet to return to the levels of, say, the early 1980s, when members of the baby boomer generation began to buy their first homes.
Even accounting for multifamily construction, which has picked up in recent years, the U.S. housing market is still adding new units at a slower rate than it has for the past half century. That doesn't account for the size of the U.S. population, projected to grow by 60 million people by 2040.
Whether or not builders keep up the pace is complicated by a number of conflicting factors. Demographic winds are behind the housing market, as more and more millennials age into the prime years for buying their first homes. On the other hand, mortgage rates have shot up in the week since Donald Trump was elected U.S. president, as investors have bid up Treasury notes in anticipation of economic expansion and, with it, inflation. The president-elect's promises to deport illegal immigrants and boost infrastructure spending could also deprive builders of much-needed workers.