Today’s press release about the national new home starts coincided with our release on the second quarter housing activity. First, the good news. In both the regional and national markets, housing starts are up significantly. Census reported that housing starts were at the 760,000 unit pace, a multi-year high. For the first six months of 2012 in Pittsburgh, permits for new homes were up almost 12%, with single family homes up over 8%.

In the case of both national and local volume, however, the activity levels are still roughly half of the supply of new construction needed to meet the demand from new household formation.

U.S. population has been growing by 3 million per year and using normal formation rates that would create demand for 1.5 million new homes. Even if household formation was now being held back by economics a conservative estimate of demand would be 1 million new homes. There’s still a ways to go before the housing industry is adding to the economy.

In Pittsburgh there are a number of economic drivers that are creating jobs faster than even a recession could offset. According to last year’s Census numbers on household formations and jobs, there is a need for about 15,000 more homes than we currently have. New construction should be going at a rate of 5,000 or 6,000 new homes but the current pace is roughly half that.

The big difference between the two markets is that housing prices are much lower nationally now than in 2008 while prices continue to climb in Pittsburgh. The figures from the first six months of 2012 for sales show an increasing trend of appreciation, with prices up between 15% and 20% in April and May. This is a recipe for a new construction boom but there are few lenders anxious or willing to finance spec homes or new developments. A lot shortage looms but in the meantime, construction is lagging demand all over.