After a decade of construction that has failed to meet demand, homebuilders are stepping up their efforts to match the red-hot U.S. housing market.
New home construction starts jumped 6.8% in February, and a whopping 22% compared with the same time a year ago. That’s the fastest growth rate in building since 2006, according to Census data released on Thursday.
New housing construction with five or more units was even more robust, rising 37.3% compared with 2021, while housing completions also jumped 5.9% from January and 2.8% from a year ago.
Building permits continue to be a sore point for construction companies, falling 1.9% from January. But they still managed a 7.7% jump compared with last year, Census data showed.
Homebuilders’ struggles and homebuyers’ frustrations
U.S. homebuilders have been struggling with crippled supply chains, record-high lumber prices, and significant labor shortages throughout the pandemic. But February’s data is a promising sign for prospective homebuyers who have been feeling the pain of rising home prices and limited inventory amid homebuilders’ struggles.
The average price of a home in the U.S. jumped nearly 19% in 2021 alone, according to the S&P/Case-Shiller U.S. national home price index, and some areas, like Phoenix, have faced price increases of over 30%.
The U.S. housing market also continues to grapple with a major inventory crisis that has left many homebuyers frustrated. In February, current inventory sank to just 729,000 home listings nationwide, falling 25% from last year and an incredible 48% since February 2020, Zillow reported.
“We are right in the heart of spring homebuying season, and it’s wild, and it’s crazy out there. It is causing some frustration at this point in the real estate market,” Devyn Bachman, vice president of research at John Burns Real Estate Consulting, told Fortune last week. “It’s going to be tough [for buyers] through at least the spring.”
Building new homes, but prices remain high
The good news is the recent increase in new home starts coupled with rising mortgage rates should help to cool the scorching U.S. housing market over time. Still, many top analysts and investment banks are predicting a strong year for home prices in 2022.
Bank of America predicts that U.S. home prices will finish the year up 10%, and Ed Pinto, director of the American Enterprise Institute’s housing center and former chief credit officer at Fannie Mae, sees a 12% jump ahead.
The Federal National Mortgage Association, a.k.a. Fannie Mae, is also expecting prices to climb 11.2% in 2022 to a national average of $384,000.
Not all housing experts are so bullish on the market, however. Analysts from the financial services and data firm CoreLogic recently forecasted home prices will rise just 3.5% in 2022 as increasing mortgage rates act to cool demand.
And after the Federal Reserve raised interest rates for the first time since 2018 on Wednesday and pledged six more rate hikes through 2022, they may have a point. Fed interest rate hikes translate directly to higher borrowing rates for mortgages, car loans, and more, which typically leads to reduced demand.
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