USA housing market likely to see more force on prices

Home starts in the US rose in September, driven by the multi family sector, but completions are not matching that hot pace, especially for lower ending homes. With demand increasing but supply in the form of completions slow, there will be more pressure on home prices to rise.

The implication are likely to be especially felt at the low end of the property market due to the Federal Housing Administration's (FHA) decision in January to cut mortgage insurance premium by 50 basis points, it points out.

Overall starts are up 18% since last September, driven by multifamily, which saw strong development of 29%, the data shows.Completions, though, the number of units actually delivered, up 20% from September of last year.

The number that should give the market pause, though, is the completions on one-unit structures, both attached and separate. They are only 3% up and they are the most important segment to look at. They significantly lag the one unit structure starts number which were up 12% year on year,' the report says.

Since it takes 6 months to deliver a Home after land breaking, completions is the actual new supply that is ready to be sold. What that means for home sales is definite rising pressure on home prices,' it explained.

The report also points out that since the Federal Housing Administration's made its premium cut, the prices for lower end Homes have jumped and the Federal Housing Administration's is a big presence in the low ending market where Homes usually sold for 75% or less than the median.

As of August, real prices for lower end Homes have jumped 10.4% relation to a year ago. Prices for top end homes have been up as good, but only half as high at 5.2%. The lower end prices, which had been up in a slim range of around 7% the last half of last year, actually took off initial in January.

The real trend to watch here is if one unit completions will rise to match what is a re-acceleration of demand on the low end. If command for homes to buy outstrips supply, prices will unavoidably rise even higher,' the report concludes.