Low Levels of Housing Starts Stifle Economy

New single family homes are being built at the lowest levels since records started to be kept on these statistics, which was 1959. The number of ground-breakings for 2010 was slightly better than the worst year on record, which was 2009. These figures do not augur well for the economy in general in the United States, since housing is a very significant part of the overall economy.

The actual number of ground breakings for 2010 was about 586,000, which was better than the worst year on record, 2009. In that year there were 554,000 new homes constructed in the U.S. One might think an improvement of about 6% is not bad, but these figures are only about one-third of what is considered normal new home construction rates, so the recovery has a long way to go.

Historically low interest rates and low home prices have not spurred significant home buying, so one has to look elsewhere to see where improvement might come. Certainly the answer lies in the jobs market. In order for home sales to pick up significantly people will need to feel comfortable enough about their job prospects to make a large financial commitment like a home purchase.

The huge number of foreclosed homes on the market is acting like an anchor holding the level of new home construction down. These homes have lower average prices, and those prices are difficult to compete with for new home builders. And with the overall supply of unsold homes very high, why should builders sink money into even more supply that will most likely sit vacant for some time?

There were about one million foreclosures in the U.S. in 2010, and the forecast for 2011 is even higher than that at 1.2 million. Losing a home to foreclosure is a big emotional and financial burden, and people just don’t want to be one of those statistics. Until confidence in the job market and the overall economy reaches a certain threshold, many people will avoid the risk.

There are a couple of additional factors holding down home sales. First of all, with foreclosures increasing at the present time, prices of sold homes continue to drop. People are realizing this and might be holding off for a better deal. The other side of the price coin is interest rates. The federal government has done everything possible to hold down interest rates, but they cannot directly control long term rates like home mortgages. These have been creeping up recently, and if they keep rising people might jump into the housing market rather than being left behind and missing the opportunity for historically low mortgage rates.

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