Homebuilding Set To Boost US Economy After Two-Year Contraction

With the new home market making it out of the woods as falling materials costs and vanishing logistics constraints have allowed builders to do their jobs. With the housing market being at an all-time high right now, it has pushed more buyers to turn towards newly constructed homes.

According to Yahoo Finance, with new construction activity at the highest level in more than a year, the Federal Reserve Bank of Atlanta’s GDPNow tracker is projecting residential investment added 0.1% to growth in gross domestic product in the second quarter. Though it may not sound like much, that would mark the first positive contribution since early 2021.

The new-home market has been slowly coming out of the woods as falling materials costs and vanishing logistics constraints have allowed builders to work their way through pandemic-era backlogs. Limited availability in the resale market is also pushing many prospective buyers toward new construction, helping support demand even as mortgage rates remain elevated.

Construction was at the center of the storm for the surge in inflation and the supply-chain turmoil of 2021 and 2022,” – Bill Adams, chief economist at Comerica Bank.

“The recent good news for construction makes it easier to imagine a soft or at least soft-ish landing for the economy.”

Government data out earlier this week showed new construction surged in May by the most since 2016, and applications for permits to build — a proxy of future activity — also rose. The unexpected increase sent homebuilding stocks rallying to a fresh all-time high and helped explain why builder sentiment is the most upbeat in almost a year.

A growing number of prospective buyers are opting for new homes amid limited availability in the resale market, where high mortgage rates have had a big impact. Before the pandemic, existing properties made up about 90% of all homes for sale — a number that as of April was closer to 70%.