New home starts slow, but remain steady

The U.S. economy has been slow to pull out of the Great Recession. Household spending is lower in large part because consumers remain cautious. Many families that were confident with their financial situation prior to the housing market collapse, had their lives disrupted in some way. Another factor hindering consumer spending is rising rent prices across the country. A Harris poll commissioned by Freddie Mac found that saving for a down payment ranked fourth on the list of priorities for most renters. Respondents were more focused on their children's education, saving for retirement, and being prepared for unexpected emergencies.

Rents expected to rise throughout 2016
David Brickman is executive vice president for Freddie Mac Multifamily. Brickman recently said on CNBC that rising rents are keeping many previous home owners from buying again and keeping a new crop of first-time buyers on the sidelines. National Association of Realtors Chief Economist Lawrence Yun said in his 2016 economic and housing forecast that rent prices rising faster than income combined with rising interest rates will slow the momentum of new home starts. The slow new home starts will drive up prices of existing homes. Yun predicts home prices and rents will increase in 2016.

New home permits hit one-year low in March 2016
Reuters reports that new home starts totaled just 1.09 million units for March of 2016 instead of the predicted 1.17 million. That was down from February's 1.19 million units and the lowest level since October of 2015. Still, the February number of new starts for single-family homes was the highest amount since October of 2007. Economists say the construction sector behaved like many other business sectors in Q1 2016. Retail sales, business spending and international trade all appeared to stall as the U.S. dollar dropped against the euro. The positive economic news is that there are more jobs available for millennials and more young people are moving out on their own to form new households.

Title insurance on new constructions
Some home buyers question whether they need an owner's title insurance policy on newly built homes. The lender always requires a policy for the amount of the mortgage. This protects the lender's interest in the property, but does not provide any protection to the homeowner. An owner's title insurance policy is most often for the total amount of the purchase price. This owner's policy protects the purchaser for the entire time they own the property and any of their heirs inheriting the home after their death. In addition to that long-term coverage, the title insurance will identify potential risks prior to a sales transaction.

Protection from mechanic's liens and other undiscovered items
New homes are built on lots that were recently part of a larger parcel. That parcel can have issues that affect all the lot owners. Also, builders with decades of financial stability have encountered hard times and not made agreed payments to contractors like roofers, plumbers electricians, etc. When these contractors file mechanic's liens, the lien attaches to the property, even if the home is built for someone else and already changed ownership. While some builders offer a title policy through an affiliated title company, the Real Estate Settlement Procedures Act (RESPA) gives home buyers the right to shop and compare policies and choose a title company for themselves based on price and policy features that best suit their needs.

Buying with confidence
The National Association of Home Builders (NAHB) provides some helpful advice for people of all ages who are planning to purchase a new constructed home. There are different factors and other considerations with buying a new home that are not involved with purchasing an existing home. Regardless, buyers should talk with a title insurance professional about the type of policy and coverage that will provide full protection of their financial investment and their family's future.