US home construction likely showed small gain in December

Industrials Associated Press

The Commerce Department reports on U.S. home construction in December. The report will be released Wednesday at 8:30 a.m. Eastern.

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CONSTRUCTION UP: The expectation is that construction of new homes increased slightly in December, rising 1.2 percent to a seasonally adjusted annual rate of 1.04 million, according to a survey of economists by data firm FactSet.

HOME BUILDING: In November construction of new homes fell slightly, dropping 1.6 percent to an annual rate of 1.03 million homes and apartments. The November decline reflected weakness in construction of single-family homes.

Economists said part of the November decline in housing was related to cold and snowy weather in many parts of the country.

Rising prices and essentially flat incomes cut into the ability of many Americans to afford a home, particularly first-time buyers.

But many private economists believe 2015 will be a better year for housing. Macroeconomic Advisers, a private forecasting firm, is projecting that builders will break ground on 1.2 million new homes and apartments this year with activity strengthening even further in 2016 to 1.49 million homes constructed and 1.61 million in 2017.

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That outlook is based on a belief that rising employment and favorable demographics will drive future construction as more and more young people decide to take the plunge and purchase a home.

The National Association of Home Builders/Wells Fargo builder sentiment index took a small dip for January, slipping to a reading of 57, down from a revised reading of 58 in December. Readings above 50 indicate that more builders view sales conditions as good rather than poor.

Broader economic trends seem to be favorable for future sales. The unemployment rate fell in December to 5.6 percent in December, the lowest point since 2008, as nearly 3 million jobs were created last year, the best performance since 1999.

And mortgage interest rates remain near historic lows. The 30-year fixed rate mortgage just dropped for a third consecutive week, falling to 3.66 percent, its lowest level since May 2013.

Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data compiled by the home builders.