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The State of New Home Construction in the US: A Look at Price Impacts

Housing affordability and availability continue to be prevailing issues across the U.S. The latest figures released by different agencies provide some mixed messages about the state of new home construction in this country. Homes continue to be built with continued shortages in some areas. The outlook on the mortgage front is encouraging.

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Housing Starts Slip But New Permits Are Up

According to the latest figures from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, housing starts are down for May 2019, but permits for new residential construction are up.

Housing starts in May (1,269,000 units), which is the measure of builders breaking ground on new homes, trended 0.9 percent below the revised April figure and were 4.7 percent below the May 2018 rate. For single-family home starts, the figure trended down 6.4 percent in just one month.

Building permits in May (1,294,000 units), which usually track home sales, were 0.3 percent above the revised April rate but 0.5 percent below the May 2018 rate. Single-family permits trended 3.7 percent above the revised April rate.

A single month's data isn't always the most reliable indicator of trends. Often, when revised figures are released, upward trends are revealed, so it's certainly possible that housing starts didn't slip in May and were closer to being on track with April's figures.

Unfortunately, the downward trend of 6.4 percent in single-family starts in a single month indicates that there is a lack of builder confidence in the single-family market. When builders construct rental units instead of single-family homes, it signals that they have less confidence in consumer demand for ownership and the economy.

The truth is that there is plenty of pent-up demand for affordable single-family housing that is only slowly being addressed. Lower prices on many construction materials, after surging prices last year, are helping to make this possible.

New home sales are up 7 percent from this time last year, and sales of lower-priced homes are strengthening. One-third of sales in April were for homes priced under $300,000.

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Lower Mortgage Rates Are Boosting the Housing Market

Mortgage rates have continued to drop in 2019, which has only helped the housing market. A year ago, the 30-year fixed rate average was 4.57 percent, and it was just 3.82 percent in mid-June.

The Federal Reserve concluded its latest meeting on June 19 with a decision to leave the benchmark rate untouched. Lower interest rates on loans are giving buyers more purchasing power, which comes at an ideal time as the summer housing season heats up.

According to the latest data from the Mortgage Bankers Association, even though the total volume of loan applications fell 3.4 percent over a week, lenders report that they are busier. This is primarily because lower interest rates have resulted in refinancing applications jumping 79.5 percent from this time last year and new purchase activity is up 4 percent.