January is typically a slow month for home sales before the spring selling season, yet the National Association of Home Builders is reporting new home sales in January were up 9.6 percent over December and 2.2 percent higher than January 2013.
In addition, residential construction spending overall has increased over the past three months, according to Census estimates.
The latest report shows total private residential construction spending increased to a seasonally adjusted annual rate of $359.9 billion during January. The current reading is an increase of 1.1 percent from the revised December estimate and 14.6 percent higher than one year ago.
Specifically, single-family spending registered an increase of 2.3 percent for the month, while the multifamily category saw an increase of 1.0 percent. The home improvement category saw a slight decrease of 0.4 percent for the month.
The figures are well below their respective peaks but the data shows significant improvements in residential construction spending for all categories from the recent lows and the prior year, according to NAHB. From January 2013, on a 3-month moving average basis, single-family spending increased by 20.6 percent, multifamily increased by 31.7 percent and remodeling increased 9.4 percent.
With few industries stimulating economic growth as robustly as construction and home building, due to both the jobs created and related spending on items such as furniture and appliances, it is evident that recent fluctuations in interest rates and home prices have kept buyers in the real estate market despite the unusually harsh winter weather this year.
That’s a great sign of things to come as the snow melts and warmer temperatures signal the return of spring – finally!
The recent increase in construction lending is another encouraging sign, according to NAHB Chief Economist David Crowe.
While it can take from six months to more than two years for an increase in lending to show up in the housing supply—depending on whether the loan is used for construction or land acquisition and development—a pickup in building and a more-balanced market could boost the economy and kick the housing recovery into a new gear.
Based on current numbers, NAHB forecasts a 33 percent increase to 822,000 single-family home starts this year.
Builders started construction on 618,000 single-family homes last year, in contrast to the typical annual starts of 1 million units since 2000. Bank lending for land development and construction is turning up after hitting a 14-year low early last year, a sign that the supply crunch for new homes could ease in coming months.
In addition, as the increase in lending spurs additional home construction, that could possibly put downward pressure on prices, which have been rising over the past two years. Last year, the average price of a new US home was $322,100, up 10.2 percent from 2012 and the highest annual figure since the Census Bureau began tracking new-home prices in 1963.
While rising prices are always great news for sellers, the tight supply of homes has priced some would-be buyers out of the market. It will be interesting to see where the laws of supply and demand lead prices this year, but if the numbers so far are any indication, more buyers are finding it’s time to make their move – and builders are answering the call!