At this point in time, reflecting upon the 2010 real estate market has become a rite of passage upon entering 2011. Signs from the residential home construction industry have indicated that the market sector has indeed bottomed out and increases in activity are expected on the near horizon. The news that the rate of home construction has officially increased near the conclusion of the year is providing financial experts with a slight glimmer of hope in regards to what is in store for the 2011 real estate market.
Statistics recently released by the Commerce Department has shown that home construction, a key indicator in regards to the real estate market, increased 3.9 percent over October 2010 numbers. Homebuilders broke ground on approximately 555,000 units (both single family detached and condominium structures) throughout 2010. While these numbers are well below the 2 million units built at the height of the boom in 2005, the trend is encouraging as the increase is showing restored confidence and health within the housing sector.
Overview 2010 Housing Construction
The increased activity within the home construction industry is providing economists and industry insiders with cautious optimism in regards to the worse housing market in decades. Upon the conclusion of June 2010, the Commerce Department reported that new home construction levels dropped to an 8-month low thanks to a decrease of .7 percent in the construction of single-family homes as well as a 20 percent drop in condo and apartment construction. According to the department's data, new home construction decreased by 5 percent and stood at its lowest level since October of 2009. At that point, it was assumed that that level would be stagnant until the large number of foreclosures subsided.
According to analyst Joel Naroff of Naroff Economic Advisors, the most recent Commerce Department information indicates that within the home construction sector "the bottom has been found" (MSNBC.com). While substantial gains to pre-mortgage meltdown levels of constructed are not expected to occur for years, Naroff believes that increased activity on approximately 675,000 construction sites are looming on the horizon. It is estimated that upon the conclusion of 2010 a total of 590,000 new residential accommodations would have started and 2011 can expect those numbers to increase by about 14 percent.
Importance of Home Construction in the Real Estate Market
The real estate market is comprised of three facets; building, selling, and resale of residential homes. When any of those factors is sluggish, the effect can trickle throughout the rest of the real estate industry. According to the National Association of Home Builders, home construction is essential to the overall well-being of the economy and that each new home construction project generates the following positive statistics (2008):
- 3.05 jobs and $89,216 in taxes (in regards to new single family home construction)
- 1.16 jobs and $33,494 in taxes (in regards to new multi family rental unit construction)
- 1.11 jobs and $30,217 in taxes (in regards to $100,000 spent on remodeling projects)
Aside from the tax benefits, each home construction also boosts the overall infrastructure of local economies. New homes also require increased consumer spending in regards to necessities such as light-bulb sales at the local lighting store, to increased spending for decorative touches including paint, appliances and furniture. Plus new homes will draw new residents to the area and those consumers are further expected to contribute to the economy by spending locally in regards to dining, shops and entertainment. Overall, the nations' economy is 70% comprised of consumer spending activity.
Factors Preventing Home Construction Boom
The current real estate market has an abundance of surplus inventory courtesy of the quantity of homes lost to foreclosure in 2010, at this point in time around 980,000 homes were lost due to lenders seizing property in response to mortgage default. Once homes are foreclosed, they become real estate owned (REO) and typically sold at large discounts. The competition can discourage homebuilders from kicking off any new home construction process, thus contributing to economic woes in the housing industry.
Despite a surplus of inventory in the real estate market and the lowest historic mortgage rates in history, it is the stagnant job market (currently featuring a 9.8 unemployment rate) preventing consumers from buying homes now. However, the American Dream of homeownership is still a popular pursuit and according to mortgage behemoth Fannie Mae, results of a new survey show that more than 51 percent of participants indicated that the mortgage meltdown have not discouraged them from pursuing their goal of buying a home. In the long run, consumers still have the desire to own their slice of the American apple pie, and once the economy is back on track, the home construction industry will follow the flow.
