February Residential Construction

Increase in Permits Shows Improving Conditions for House Builders

  • Housing Starts for February decreased mildly by 1.1 percent to a 698,000 unit annual rate.
  • Permits for new residential construction increased by 5.1 percent to a 717,000 unit rate.
  • Builder Confidence was unchanged in March according to the National Association of Home Builders.

Even though builder confidence was unchanged in March, according to the National Association of Home Builders, we have good reason to expect that the overall improving trend in residential construction will continue. Housing starts in February dipped slightly, by 1.1 percent, to a 698,000 unit annual rate. Even with the slight dip, February housing starts extended recent stronger building activity. Single-family starts fell by 9.9 percent in February to a 457,000 unit rate, but multifamily starts increased by 28.7 percent to a 233,000 unit rate. Housing permits, which provide a forward view on construction activity, increased in February by 5.1 percent to a 717,000 unit annual rate with gains in both single and multi-family permits. This is the strongest monthly permits number since October 2008 and is up 34.3 percent from a year ago. Stronger starts will likely follow the stronger permits numbers. House completions (of started construction) increased by 6.2 percent in February. Over the past year completions are still down 7.0 percent, but that will turn around soon with the recent uptick in overall building activity. Builder confidence was unchanged in March at a level of 28, well above recent lows. A level of 50 is neutral, so the March level, while on an improving trend, is a less bad number, and not yet a good number. The builder confidence index has steadily advanced since last September. The strongest regional confidence numbers are from the Midwest, the weakest are from the Northeast. Residential construction is slowly reasserting itself into the group of growth factors for the economy. Tighter multifamily vacancy rates are putting upward pressure on rents and that is a positive signal for apartment builders. Stronger job growth and recent gains in equity markets are also positive signals for single-family home builders.

A new development in residential real estate markets is Fannie Mae’s decision to sell 2,500 homes in eight locations in bulk sales to investors.  As many as 572 homes will go to one buyer, in the case of Atlanta. Investors will be required to rent the properties to existing leaseholders. The current market value of all homes is $320 million, not a large sum by Wall Street standards, but this may be an important pilot program that could help stabilize regional housing markets.

Market Reaction: Equity markets opened with losses. Treasury yields are down after climbing in the wake of last week’s FOMC policy announcement. Oil is down to $106.05/barrel. The dollar is up against the yen and the euro.

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