Housing construction has not looked this good in years, but what are the reasons for its sudden turn around?

By Peter Ricci

Housing construction, as any observer of the real estate market knows, suffered mightily in the post-boom housing economy, as scores of vacant, newly-built properties languished in new construction ghost towns.

Now, however, the situation is quite different. Privately-owned housing starts jumped by 15 percent in September and are now at their highest level in four years, while the Federal Reserve specifically cited upticks in single-family homebuilding in its latest Beige Book. So what’s behind this radically-changing scenario? Quite a bit, actually.

Housing Construction Turn Around – Reasons?

As the always-excellent Nick Timiraos recently pointed out on The Wall Street Journal, a number of factors have contributed to the housing construction turn around, among them:

• Firstly, Timiraos noted that housing construction was down quite a bit from it’s boom-era highs, so it was not going to take any radical changes to stimulate homebuilding activity.
• Thus, the recent pick-ups in consumer confidence, along with dramatically low mortgage interest rates, have produced noticeable interest in homes.
• The earliest interest in housing came from investors, who bought mountains of distressed properties; now, though, foreclosure inventory is way down (foreclosures made up only 14 percent of existing-home sales in September, down from 50 percent in February 2011), and consumers are instead looking at new construction properties.
• The unique home equity situation, Timiraos added, has also contributed to new construction demand; facing negative equity, home sellers are less apt to put their homes on the market, driving prospective homebuyers to look at newly-built homes instead.

Homebuilders Respond to Homebuyer Demand

So, as those earlier numbers on housing starts suggested, homebuilders are responding to consumer interest – single-family construction alone was up by 43 percent from a year ago in September, and applications for home-purchase mortgages, Timiraos wrote, were 12 percent above their 2011 level.

All of this had led to high expectations for 2013. As Glenn Kelman, the CEO of Redfin, wrote in a recent op-ed, recent housing construction has been confined to remodeling and completing half-finished projects, but if demand for new homes remains high, builders will begin starting new projects and hiring on more people.