The Department of Housing and Urban Affairs’ Census Bureau says new single family housing in March, 2017, is up a whooping 15.6% over March, 2016. Construction spending itself is up as well…4.9% over last year – making this a very busy and profitable year for construction, remodeling and supply companies. The Bureau also reports that the national median sales price of that new single family house is $311,000. In 2012, the median sales price of a new single family house was $230,000. This is a substantial increase in just five years!
Existing single family homes have a median sales price of $236,000. and the number of sales of existing single family homes is up 4.4% from last year. “This is the fastest pace in both sales volume and median sales prices in more than a decade,” says Brian Westbery, chief economist with First Trust Advisors.
The country needs 1.5M new homes of all types in all demographics to meet the pent-up demand spurred by the housing bust in 2007. Millennials who have been living with their parents are getting jobs and moving into their own homes now; Gen Xers with growing families are wanting more space in single family housing units; late Boomers are downsizing from single to multi-family housing to save money and reduce maintenance responsibilities; and early Boomers are wanting smaller footprints within retirement developments of multi-family structures and 55+ communities.
Aberdeen Investment Management projects that this pent-up demand, along with growing confidence in the economy due to wage growth and low interest rates, will propel this new construction growth into the mid/late 2020’s. Many investment houses are encouraging their clients to invest with “household name brands” in new single and multi family home construction firms like Toll Bros., Centrex Home Builders, Cal Atlantic Homes, etc. and many are offering their clients exchange traded funds (ETFs) that tract the residential construction industry and REITs, real estate investment trusts.
All this activity in the new construction of residential housing gives buyers and investors multiple ways to participate in the real estate industry. Whether it’s buy a unit/home and/or investing in construction companies, suppliers, REITS or ETFs, the good news is that there is room to grow in all these construction investment sectors as they’ve been depressed for a long time and haven’t yet fully recovered. Even if the Fed raises rates, which it is expected to do, an interest rate of even 6% looks pretty good when compared to the Fed’s 40 year average rate of 8.6%.
