Increase in Construction Good for Housing, Economy
As the year winds down, the housing market is revving up. In recent reports, we have seen an increase in buyers, home values and construction starts.
A recent article in the Atlanta Journal-Constitution stated housing starts in metro Atlanta increased 50.3 percent in the third quarter compared to the same period a year ago. The increase in construction signals a positive outlook not just on the housing industry, but on the economy as well.
An increase in construction means an increase in supply for homebuyers. As more buyers enter the market, people who may have been delaying selling their homes decide to put them on the market as well, and the cyclical nature of the housing market begins to spin in the right direction.
The National Association of Home Builders Housing Market Index increased to 46, up from 41 for November. The index is derived from a monthly survey that NAHB has been conducting for 25 years.
NAHB Chief Economist David Crowe said, “While our confidence gauge has yet to breach the 50 mark — at which point an equal number of builders view sales conditions as good versus poor — we have certainly made substantial progress since this time last year, when the HMI stood at 19.”
The housing market’s benefit from an increase in construction is fairly easy to see, but the economy’s benefit from construction is a little more elusive — although just as significant.
Higher builder confidence leads to more construction, as builders feel more positive about their ROI. The increase in construction based on this confidence in the market creates a domino effect across other industries and eventually has the power to have a significant impact on the health of the economy.
According to a homebuilders’ group in a recent article in the Atlanta Journal-Constitution, each new home built creates about three jobs for a full year and yields $90,000 in taxes.
More construction means more job opportunities for builders, contractors, inspectors and on-site workers. The more workers there are, the higher the demand for supplies and building materials as well as trucks and equipment to transport those materials. In addition to hard construction materials, new home construction leads to an increase in demand for carpet, appliances, furniture and paint. (For more on how the economy is affected, see the previous Thought Leadership column, “Why the Housing Recovery Matters.”)
Both Home Depot and Lowe’s have reported higher earnings in the third quarter and Home Depot raised its full-year forecast, further indicating progress in the market and confidence in what will come in 2013.
Home Depot’s CEO Frank Blake commented on the quarterly results in an AP article: “Our third-quarter results were better than we expected and reflected, in part, what we believe is the start of the path toward the healing of the housing market,” he said.
Home Depot and Lowe’s increase in earnings isn’t a direct correlation for predicting the housing market’s health, but the earnings reports do point to more confidence in the market – and we know how heavily the success of the market relies on perception.
David Ellis, executive vice president of the Greater Atlanta Home Builders Association commented on the influence of the housing market on the economy saying, “Housing always leads us out of recessions so when we see housing pick up, it really has a ripple effect throughout the greater Atlanta economy.”
The housing market still has a ways to go, but an increase in construction is a significant step in the right direction. The construction will first impact the housing market as new buyers and sellers enter the market, and then the housing market’s gradual affect on the economy will begin to take shape as jobs are created with a higher demand for materials. Slowly but surely, things will begin to pick up.
– J.D. Crowe, Senior Vice President of Southeast Mortgage