Home construction to surge in coming quarters, CIBC says

As the demand for housing continues to increase so will the demand for new homes! Home builder confidence is at a 8 year high and housing starts are going up all over. 

October 7, 2013, 10:32 AM

 

Home construction could surge in coming quarters, despite signals of recent softness, as buyers look to lock in good deals and it becomes easier to obtain a mortgage, according to a Monday research note from CIBC World Markets.

Analysts with the Canada-based investment bank forecast that construction will be started on almost 1.2 million U.S. homes next year, up 29% from 930,000 by the end of this year. Part of that jump will be due to borrowers rushing to close deals with relatively low mortgage rates, and before prices rise too much further.

“The anticipated increase in costs could be a powerful motivation to buy in the next few quarters rather than wait it out,” CIBC analysts wrote.

Annual home prices were recently up more than 12%. And mortgage rates started rising in early May, though they have declined in recent weeks. The combination of higher rates and prices raise monthly mortgage payments, pricing out some interested buyers.

However, mortgage rates remain relatively low by historical standards and home prices are about 21% below a bubble peak. Looking forward, mortgages may remain cheap following the Federal Reserve’s recent decision not to pull back yet on programs that are keeping longer-term rates low.

Among the various hurdles that would-be borrowers have faced in recent years are extremely high credit standards. In the wake of the financial meltdown, the mortgage market made it tougher to get a loan, and there’s been concern that some credit-worthy borrowers have been unable to obtain credit.

But there are signs that mortgage standards are starting to ease. Also, banks may increasingly look to make new loans as applications to refinance dry up.

There’s certainly room for home construction to grow. For August the government estimated that housing starts hit a seasonally adjusted annual rate of 891,000, far below the 1.7 million starts per year that economists estimate are needed to maintain current stock and meet demand for replacement and second homes.

–Ruth Mantell

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