The USA Is in Another Housing Bubble
The last time single-family homes were built at the pace they are being built now, the housing bubble was about to burst. The number of single-family homes under construction grew for the third month in a row. These dwellings are driving the construction industry. The bursting of the housing bubble in 2007 triggered the Great Recession and was responsible for millions of lost jobs, stagnant wages and lost revenue that affected the whole country for years. Taxpayers had to bail out the auto industry as well as many others that would have otherwise floundered or had to close for good.
New Housing Starts for November
On December 18, the Department of Housing and Urban Development released the latest housing numbers. New housing starts went up by 1.2% in November. This is the seasonally adjusted rate. There were 19,000 more units under construction in November compared to October. In October, the new housing starts were 5% higher than September. The new housing starts for September were 2% higher than those in August.
Comparing 2020 to 2019 Housing Starts
The housing starts in November 2020 were 12.8% higher than those from November 2019. Demand for single-family housing and the low supply of existing homes for sale appear to be the drivers of the higher housing starts for 2020. However, it's also worth noting that the spring and summer of 2020 had housing starts that were much lower than the same months of 2019. From March through July, housing starts were lower than the same months of 2019. This was related to COVID-19 shutdowns during those months.
Residential Construction Is Booming
Home construction accounted for 44% of all construction spending in October. The past few months have demonstrated plenty of optimism for the single-family housing market. However, signs suggest that optimism is fading. Home builder sentiment fell in November for the first time since April. However, the permits issued by local governments for single-family home construction are predicted to keep increasing into the early months of 2021. The starts for single-family homes reached a level in November that had not been recorded since 2007, which happened right before the housing bubble burst. This was the second month in a row that the record was broken. building permits for all types of housing were up by 6.2% in November. This is equivalent to 1.63 million housing units after seasonal adjustments. The number of permits were 8.5% higher in November 2020 compared to November 2019. Even with all these new permits and home construction starts, the supply of new and existing homes is still tight. Completion of housing units fell by 12% in November. Just 1.16 million units were finished in November compared to 1.3 million units in October. However, this is expected due to weather changes and the seasonal nature of construction, especially in the northern tier of states.
Why the Housing Boom May Not Last
There are a few reasons why the housing boom may not last. The number of people who can afford to buy new homes is dwindling. The tight supply has priced a lot of people out of the market. Bidding wars are driving up housing prices, too. People who can afford to be in the market are out-bidding others. Neighborhoods that weren't previously popular are seeing this happen, too. For example, in Columbus, OH, suburbs and neighborhoods including Grandview Heights, Upper Arlington, Worthington, Clintonville, Victorian Village and German Village have been popular for years. Houses there would be in contract within hours of being listed for sale. Currently, houses in less-popular neighborhoods, such as Forest Park East and West, Hilltop and Berwick are seeing double-digit home sale price increases, bidding wars and prices that are much higher than 2007 levels. First-time home buyers without equity or a large down payment might be priced out of the market. Continuing uncertainty around the COVID-19 pandemic and vaccine effectiveness are also playing roles in the decrease of sentiment among home builders.
Some Experts Think Housing Will Stabilize
Other housing experts and economists think that growth will slow in 2021, but they don't think there will be a dramatic bursting of the bubble like the nation saw in 2007. The Federal Reserve is keeping interest rates close to zero, so that makes borrowing money for a mortgage more affordable for all home buyers. The ability to work from home may extend to more workers even after a COVID-19 vaccine is available. People may want to own a home instead of renting an apartment close to their place of work.
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