Broker Check

Home Build Boom Could be Near

| February 10, 2020

Since the last real estate crash, we’ve been making a slow and steady rebound.

The most recent housing data not only suggest the trend is continuing, but that the rebound is picking up pace. In fact, the latest data blow expectations out of the water and get us to a place we should be from an analytical perspective (more on that later).

Source: U.S. Census Bureau

Monthly housing starts – the technical term for new homes breaking ground in any given month – increased 16.9 percent in December 2019, which is a 1.608 million annual rate (1.38 million was the consensus projection).

That means housing starts are up 40.8 percent over a year ago, which is simply massive.

The growth is significant in both single- and multi-family homes (anything from a duplex to high-rise apartments).

In the past year, single-family homes are up 29.6 percent, while multi-family homes are up a whopping 68.6 percent.

Some may consider these astronomical numbers a reason to fear another housing market crash or as a sign the country is being overbuilt. But the truth is we’re just beginning to catch up to where we need to be to support population growth and scrappage.

The U.S. needs about 1.5 million new housing starts each year to sustain population growth and scrappage. We just passed that in December 2019. Given how long it’s taken to get there, there is room for more building to make up for shortages. But in an encouraging sign, building activity has been broad-based across all regions of the U.S, as the table below shows.

As a result, Cornerstone’s outlook on housing hasn’t changed.

We still anticipate more home building to catch up to the housing rates needed to support the American people. One definite benefit of the construction, house purchases, and so on, is that it will add to gross domestic product in 2020. We cover this in more detail in our quarterly outlook that was released recently for our clients.

This housing growth is why we added a micro-sector position for home construction in our 2020 model portfolios. There’s been a housing lag for 10 years, so we’re due to catch up, especially with low mortgage rates.

Securities sold through CoreCap Investments, Inc., a registered broker-dealer and member FINRA/SIPC; advisory services offered by CoreCap Advisors, Inc., a registered investment advisor. Cornerstone Financial and CoreCap are separate and unaffiliated entities.