The housing market received a jolt of good news Thursday. The Commerce Department reports that Single-Family Housing Starts improved in May.
As compared to April, last month’s Single-Family Housing Starts rose 4 percent to a seasonally-adjusted, annualized rate of 419,000 units, a figure slightly better than the 6-month average and the highest tally since January.
A “housing start” is defined as a home on which new construction has started.
In addition, Building Permits saw a boost in May, too, climbing nearly 9 percent overall. Building Permits are a gauge of future construction activity with 89 percent of permits leading to new construction within 60 days.
For several reasons, the May data surprised Wall Street analysts.
First, more homes being built suggests a healthier housing market, yet, earlier this week, the June homebuilder confidence report posted its lowest reading since September 2010.
Second, new home sales are only slightly higher than their all-time lowest annualized readings. Sales volume remains low in San Francisco and nationwide.
And, lastly, home prices have yet to recover in full. By adding additional inventory, builders may suppress price growth through the remaining portions of 2011.
For home buyers in California , though, the Housing Starts data may be a signal that the market is turning. The data can be used to your advantage.
Home prices are a function of supply and demand and — based on the Housing Starts data plus the number of newly-issued Building Permits — home supply is likely to rise. Demand, on the other hand, despite low mortgage rates, may not. At least not in the short run.
As a buyer, you can use this information to your advantage. If you’re looking to buy new construction, ask your real estate agent about the current new homes supply. There are bargains to be found and May’s Housing Starts data should support low prices for at least the next few weeks.