March gave some mixed results regarding the health of newly constructed homes in 2015. New permits shrank by 5.7% from February to March, yet housing start-ups rose by 2.9 percent. Both directly affect the number of homes available on the market. How home inventory will be affected is yet to be seen.
Building permits and housing start ups are the leading indicator for the health of the new construction industry. On the positive side, single-family start-ups increased by 4.4% in March. Another positive note, the lack of building permits in March may be just a small dip because housing permits have increased by 8% since last year and increased by 10% in the Western Region.
However, costs for lots, materials and labor for builders is still a bit high, preventing builders from building more houses to raise home inventory. According to realtor.com, to return to normal markets, builders would need to construct around 1.5 million homes. Currently they are on track for around 1.2 million.
How these numbers will relate to home inventory and therefore the housing market overall are yet to be seen. Ideally, home inventory will achieve a good balance to prevent price volatility that we have seen in the past.