The new home building industry is critical for preventing the economy from falling back into the pit. What are the links between the home building industry and the economy? Are we on the right track? If we are, what could sabotage the recovery and bring about a new, deeper recession?
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New data released in January 2013 shows builder confidence holding steady. In fact the latest figures from the National Association of Home Builders/Wells Fargo Housing Market Index reveal that builder confidence is at its highest level since 2006 (47 in January 2013), following eight months of increases.
This is great news for all Americans, as well as foreign investors who have been desperately seeking a safe haven for capital and reasonable investment returns. Of course confidence is one thing and while it may be a great indicator of housing growth, real production is needed to put real dollars in the economy.
So where do we stand? According to end of year statistics, the NAHB reports a 25% jump in improving housing markets across the country, as new home sales, permits and housing starts are all up. Freddie Mac’s chief economist (Frank E. Nothaft) is predicting a 19% increase in housing starts for 2013.
The largest U.S. home builder by value, Lennar, reported a 42% increase in revenue for the fourth quarter of 2012, beating out analysts’ estimates. Luxury home builder Toll Brothers also put on a brave face recently, announcing the purchase of two developments in the country’s most expensive urban market, Manhattan. Meanwhile a third home builder controlled by Starwood Capital has filed for just short of a $200 million IPO, which the Wall Street Journal expects to be just one of many in coming months.
However, this is rolling off of a busy fourth quarter for the real estate industry, as many scrambled to act ahead of uncertainty over the fiscal cliff. So far it is widely accepted that housing has been the only thing pulling the economy up, but if builders and the real estate industry are sabotaged everything could crumble.
With more fiscal deadlines looming as well as debates over tax cuts and spending, it is critical those negotiating are truly aware of how intertwined the country’s destiny is with a thriving new home construction industry.
The major real estate tax breaks have been extended for now, but the government also needs to keep it attractive to live and invest here, while facilitating a high percentage of homeownership. Otherwise killing the real estate recovery will have widespread, deep and long lasting consequences for all, perhaps even setting off another financial crisis tsunami which rolls around the globe.
For those unaware of just how vital new housing construction is to the economy and quality of life, take a look at the infographic below.
Every new home creates jobs and tax revenue. So if the government truly wants to be successful in lowering unemployment and meeting its budget needs, the answer is to help, not hurt, the building industry.
Studies from the National Association of Home Builders (NAHB) show that “building 100 average single family homes generates more than 300 jobs and nearly $9 million in tax revenue for state, local and federal governments that support schools and communities.” In fact, housing normally accounts for around 17% of the nation’s GDP. So it’s no wonder we’ve been in trouble during the last 7 years, with very little building going on at all. Imagine how well the economy could rocket if the industry was running at full steam again.
New housing boosts a variety of related industries, but that money also goes back into the local economy through local businesses and circles around in consumer spending and new hires, in all industries. Plus, that tax revenue goes to boost local services improving communities and making them safer. Additionally, new homes lift local property prices, restore home equity and in turn increase consumer confidence and spending. This is the solution for the fiscal crisis right here.
Sadly homeownership and investors have been slapped recently and undervalued. New homes attract new residents and keep communities vibrant, while strengthening and renewing cities. More than that, homeownership is a critical rung on the evolutionary ladder to moving people up in life. There are many residual benefits of homeownership, which are proven but frequently overlooked, including lower teen crime and better school performance. This has a dramatic, positive impact on the future.
The new home building industry may be turning around and pulling up the overall economy with it, but it shouldn’t have to carry all the weight. And certainly investors and willing home buyers shouldn’t have to do it alone or even have to battle to help the economy grow. Government, giant banks and mortgage lenders should be fueling the train, not slamming on the brakes.
Keep in mind that a poor real estate market for buyers means more multi-family housing. ProtectHomeownership.com reports that building the same number of multi-family rentals creates only around one third of the jobs and tax revenues as homes do.
Support homeownership, support new home building.
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