New Construction Stays Hot; Home Buyers Buy Up Supply, And Then Some

Buying new construction? Get moving. Emerging data hints at higher home prices in 2012.
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Single-Family Housing Starts Keep Climbing

The U.S. Census Bureau publishes a monthly Housing Starts report in which it tallies the number of new homes on which ground has been broken.
The Housing Starts report is split into three parts:

1. Single-Family Housing Starts, a group that comprises 1-unit homes, detached single-family residence, and attached  single-family residences.
2. 2-unit, 3-unit and 4-unit homes

3. "Apartments" -- buildings of 5 or more units which includes true apartments, condo buildings, and co-ops.

All three home types are relevant, but to new home buyers in places such as Bucks County, Pennsylvania or King County, Washington, it's the "single-family" starts data that's most relevant.
Single-family homes are the most common purchase type and account for more than 80% of all home purchases.

In November, nationwide, Single-Family Housing Starts rose to 447,000 units on a seasonally-adjusted, annualized basis in November. This is a 2 percent increase from October and the third straight month that the number of  Single-Family Housing Starts grew.
Single family starts are now 15 percent above the metric's all-time low, which was set in February 2011.

Home Prices Rising Into 2012

November's Housing Starts data likely won't be a surprise to today's active home buyers. Many report competition for new homes and have faced multiple-offer situations. When homes are priced right, they sell; and builders are moving inventory.

Since September, new home sales volume is up and remaining home inventory is down. Basic economics tells us that home prices should soon rise, if they haven't already.

The good news is that low mortgage rates should keep new homes affordable.
As compared to six months ago, average mortgage rates are down one-half percent, normalizing for discount points and closing costs. This rate-drop has made a palpable dent in the cost of homeownership. Looking at homes in the Washington, D.C. metro area at the mortgage loan limit for the area, it's obvious why low rates appeal to buyers.

• In June 2011, the principal + interest on a $625,500 mortgage was $3,166.78 per month

• In December 2011, the principal + interest on a $625,500 mortgage is $2,983.85 per month

With mortgage rates down, home buyers in Loudoun County, Virginia; or Potomac, Maryland, as examples, are saving $2,195 per year. It's no wonder home builders report the highest buyer foot traffic in 3 years. Buyers know a good deal when they see one.
Furthermore, the same report that showed Single-Family Housing Starts rising showed Building Permits rising, too.

Permits for single-family homes rose to their highest levels of the year in November and 89 percent of those homes will start construction within 2 months. Building Permits are a pre-cursor to Housing Starts so we should expect for Single-Family Housing Starts to remain strong through the early part of 2012, and into the spring season.

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