How New Home Construction Impacts You

Did you know that for every new home built, three new jobs are created? Plus more than $100,000 is generated in spending and tax revenue.

Now think about what’s happened to new home construction since 2008 and what’s still happening today. After a slow but steady climb towards recovery, new home construction stumbled into a historically weak state during the last half of 2013. In a healthy economy, 1.5 million new homes are built each year. But each year since the bubble burst, and even this year, we will see less than 1 million new homes built.

Weak new home construction is taking its toll on our country’s economy and GDP. Historically residential construction investment has contributed roughly 5% to gross domestic product. But today it’s barely above 3%.

Not a pretty economic picture, is it?

WHY AREN’T BUILDERS BUILDING NEW HOMES?

Home builders started losing confidence because of rising interest rates, high consumer loan costs and tight lending rules that limit buyers’ ability to obtain loans. Simply put: they aren’t willing to build homes they might not be able to sell.

Instead, many home builders have turned toward building higher price homes for wealthy folks who don’t need loans or are guaranteed a loan approval and multi-family rentals, as they assume fewer buyers mean more renters.

Other contributing factors include:

• New Qualified Mortgage rules tightening credit for home buyers even further
• Changes at FHA, Fannie and Freddie increasing the costs associated with getting a mortgage
• Rising material and labor costs
• Slow building permit approval processes and limited buildable lots
• Tight credit for smaller builders

WHAT DOES THIS MEAN TO THE AVERAGE AMERICAN?

If new home construction remains weak, we could see artificially high home prices, even more first-time home buyers being priced out of the market, and a housing shortage. All this would continue to slow down our economic recovery and make the American Dream of homeownership even harder to achieve.

SO, WHAT’S THE CURE?

The government and banks need to loosen mortgage standards and lower loan costs for qualified buyers so home builders will have the confidence to know that, if they build, buyers will come. The good news is that the government and banks appear to be cautiously moving the pendulum in the right direction. And several large home builder are exploring building more homes in more affordable price ranges. We need to ensure it continues to move in that direction for our country’s economic health.