Experts aren't worried about slight drop in new home starts

Posted by IronPlanet on Aug 16, 2012 8:24:00 PM

The numbers are in for the construction industry progress during the month of July, and new-home construction is down, but industry experts don't believe this bodes poorly for the future. The Commerce Department is reporting that new home starts are down 1.1 percent from an annual rate of 754,000 in June to 746,000 in July, according to the Financial Times. The number of constructions jobs that got underway last month may have been less than expected, but this decline is not much to worry about, as new home starts rose 6.8 percent from May to June. The slight decline is more of a sign of the market stabilizing than a cause for concern.

There's a good chance that this percentage will once again be on the rise in coming months. The Commerce Department also reported the number of building permits jumped quite a bit to a pace of 812,000 units annually, which is far above the projected 766,000 unit estimate. This is the highest adjusted rate of construction permits the industry has seen since 2008, according to the Times.

"While single-family starts, which are more related to the ownership market and the home builders, fell 6.5 percent, single-family permits rose 4.5 percent," Michael Rehaut, a builder analyst for J.P. Morgan Chase, told the Wall Street Journal. "Hence we expect August total and single-family starts to demonstrate a solid rebound from this month. As a result, we maintain our belief that housing demand continues to improve at a moderate pace, while additionally, we believe our homebuilding universe should continue to gain share, particularly over the next two to three years, given their strong capital positions and the more limited financing available to smaller private builders."

According to The Associated Press, for every new home that gets built, three jobs are generated for a year, and there is about $90,000 in tax revenue. This stimulates the economy, and can in turn lead to more new construction projects in the future. The positive outlook for the construction industry bodes well, and many companies may need to start purchasing construction equipment such as cranes, cement mixers, generators and even tools to help keep business running smoothly.

Topics: Construction, Industry Headlines