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US residential construction rises but not enough

The annual rate of US residential construction rose by 3.4% in the year to November in tune with increased demand. At the same time, single family home starts reached their highest level for over a decade and builder confidence soared. However, despite the increase of construction the US property market continues to suffer from an acute shortage of homes.

More licences for US residential construction

According to the latest figures issued by the US Commerce Department, the number of licences for new residential construction in the US reached an annual total just shy of 1.3 million units at the end of November. This represents a slight drop on October but an annual increase of 3.4%. Licences for new single family homes rose by 1.4% in the month.

US property new residential construction

More home starts throughout the US

The number of new home starts also rose in the year to November. With a total of just under 1.3 million, ground breaking increased by 3.3% in the month and soared by 12.9% in the year.

Single family home starts rose by 8.7% so far this year. This represents the strongest pace in over a decade, specifically since September 2007. “The strong November reading indicates that builders are continuing to increase single-family production to meeting growing demand for housing, said Robert Dietz, Chief Economist at the National Association of Home Builders (NAHB).

Fewer completions

Despite the rise in licences and starts for US residential construction, actual completions dropped. Finished properties totalled 1.12 million in November, up 6.1% on October but down 7.2% in the year.

Builder confidence higher.

On the back of increased licences and ground breaking, builder confidence reached its highest for 18 years. According to the December index issued by the NAHB, confidence among home builders in the US went up 5 points to 74. This is the highest the index has been since July 1999.

The survey takes three criteria into consideration: buyer traffic, sales conditions for new homes and sales expectations over the next six months. All three criteria went up with sales conditions registering 81 points, indicating a “very favourable” market.

“Home buyer traffic rose eight points, showing that demand for housing is on the rise,” said Dietz. “With low unemployment rates, favourable demographics and a tight supply of existing home inventory, we can expect continued upward movement of the single-family construction sector next year.”

Higher prices and lower supply

The rise in US residential construction comes against a background of higher prices and lower supply in the market as a whole. According to the latest housing market statistics issued by the National Association of Realtors (NAR), median prices for US property rose to US$247,000 in October, up 5.5% in the year. It was also the 68th consecutive month of house price rises.

At the same time, the supply of property dropped yet again. At the end of October, the US inventory had fallen by 10.4% in the year and stood at just 3.9 months’ supply. “Low inventory is limiting choices for prospective buyers and keeping price growth elevated,” said Lawrence Yun, Chief Economist at NAR.

(Source: US Department of Commerce, National Association of Home Builders, National Association of Realtors)

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