New homes have been out of favor for years now, but some markets are starting to see signs of a home building recovery.
The number of single-family homes under construction increased 1.5% in January to a seasonally adjusted annual rate of 699,000, according to figures released this morning by the Commerce Department. That's also up 9.9% from a year prior. Meanwhile building permits that allow for developers to break ground -- the step before construction begins -- rose slightly from December but nearly 20% from January 2011.
Home builders express cautious optimism about the market, citing improving employment in some pockets of the country. Indeed, the housing data varies greatly by state, with some regions experiencing significant growth in building permits. In December, for example, Washington, D.C., was up a whopping 414% from a year earlier, according to the most recent data available. Maryland was up 160%, while South Carolina was up 72%.
Despite the percentage spikes in these states, housing experts point out that actual building permit numbers remain low. For example, new building permits in South Carolina totaled roughly 1,500 in December, well below pre-crisis figures. And in many areas, much of the growth has been for permits to build multifamily properties, which suggests increased demand among renters, not home buyers.
Overall, however, the home building market is benefiting from a mild winter, says Jack McCabe, an independent housing analyst in Deerfield Beach, Fla. Fewer snowstorms means home builders can get started on new properties earlier in order for them to be nearly ready (or finished) come spring and summer -- the peak home buying seasons, he says. Many expect the new construction will continue to increase, says Brad Hunter, chief economist at Metrostudy, a housing market research and consulting company. His firm estimates that starts for single-family and multifamily homes will rise about 17% and 21%, respectively, this year.
Here are the five markets where home building has increased the most over the past year.
- December 2011 compared to a year prior: up 414%
Building permits are up more than 400% in the nation's capital, but experts are quick to point out that the number is still small compared to before the housing downturn. But government jobs continue to attract more residents to the nation's capital, which in turn is creating more demand for housing, says McCabe. For builders there are two big advantages to developing new housing in the nation's capital: Nearly all of the district's building permits in December were for multi-unit properties suggesting that rental demand is rising. There are also incentives to build single-family homes to sell: The area is one of just two major metro areas where home prices are actually up year over year.
The latest S&P/Case-Shiller Home Price Indices for November 2011 shows home prices are up 0.5% compared to the prior year, and while that change is small, it's better than most other major cities, which are down. With fairly stable prices, developers are less at risk of losing money on new homes or selling them at a fraction of their original asking price, says McCabe.
And unlike states that experienced a building boom prior to the recession, developers don't have to compete with excess unsold inventory in Washington, D.C. or foreclosures. Less than 1% of homes in the D.C. metro area received foreclosure filings in 2011, according to RealtyTrac.com.
- December 2011 compared to a year prior: up 160%
Housing experts say Maryland's proximity to Washington, D.C., has helped to boost its housing sector, including the number of building permits in the state. Many government employees reside in parts of Maryland and they're likely fueling some of the demand for new housing.
For home builders there's even more incentive to break ground in Maryland, says McCabe: some of its cities have higher home prices than many other parts of the country. "The more expensive the homes, the larger the dollar profit will be," he says. For instance, the median sales prices of existing single family homes in the metropolitan area that the state shares with Washington, D.C. was $313,300 in the fourth quarter 2011 compared to the national median of $163,500, according to the National Association of Realtors.
And the job market suggests there could be more demand for new housing to come: the state's unemployment rate was 6.7% in December, down from 7.4% the year prior, and better than the national unemployment rate at the time of 8.5%, according to the Bureau of Labor Statistics.
- December 2011 compared to a year prior: up 155%
As the nation's economy improves, manufacturing, textiles and the mining sectors in the state are starting pick up, says Hunter. The state's unemployment rate in December was 7.9%, down from 9.7% a year prior, according to the BLS. These improvements could help give a boost to its housing market, he says; more than half of the latest building permits in the state are for single-family homes -- suggesting there could be new demand from residents to buy.
Still, experts say the state has a long way to go before real improvement can be seen in its housing market. West Virginia was ranked as the nation's least "economically confident" state in both 2010 and 2011, according to the latest Gallup poll. Though growth is up on a percentage basis, the actual number of building permits filed in December was very low -- just 209. "When you're starting from a very weak initial number, any kind of increase looks like a huge jump," says Hunter.
- December 2011 compared to a year prior: up 110%
Signs of an economic turnaround are present in parts of Ohio, especially in the northeast, which is helping to boost home building in the state, experts say. The region experienced year-over-year employment growth for six consecutive quarters through the fourth quarter of 2011, according to Team NEO, a nonprofit venture of the area's largest metro chambers. Growth is coming from several sectors: Year-over-year, manufacturing employment grew by 8,400 jobs, or 4%. And recent reports say the biomedical industry in Cleveland is expanding.
With the state's job market improving -- unemployment was 8.1% in December, down from 9.5% a year prior and the lowest since December 2008 housing experts say there could be more demand for home purchases and rentals going forward.
- December 2011 compared to a year prior: up 72%
While the vacation home market is still far from its pre-housing crisis days, it's been steadily improving in South Carolina. That, in turn, has contributed to a jump in building permits, says McCabe. Cheaper than Florida and closer to the Northeast, consumers have been increasingly flocking to South Carolina's waterfront cities and towns for its vacation homes and retirement communities, he says. "It's becoming a formidable competitor for Florida."
Experts say the demand for new homes seems to be coming mostly from out-of-state Americans, including retirees. The job market in South Carolina remains weak with a 9.5% unemployment rate in December, though that is an improvement from the 10.9% a year prior.