Tags: Naroff | housing | starts | permits

Improving Construction Supports Rising Optimism in Housing

Wednesday, 19 September 2012 10:07 AM

INDICATOR: August Housing Starts and Permits

KEY DATA: Starts: 750,000 units annualized (Up 2.3 percent); Year-over-Year: Up 29.1 percent; Permits: 803,000 units annualized (Down 1 percent); Year-over-Year: Up 24.5 percent

IN A NUTSHELL: “The steady progress in the housing market continues with the homebuilders’ optimism hitting a six-year high, and the improvement should continue.”

WHAT IT MEANS: The recovery in the housing market continues unabated. The construction of new homes increased in August, led by a strong rise in single-family starts. While the August rate was only the second highest this year, we haven’t seen construction this strong since the fall of 2008.

Since August 2011, housing starts have surged, with the pace so far this year nearly 20 percent above last year’s level. The Northeast and West experienced some slowdown, while the South and Midwest showed increases.

Can this rebound continue? Absolutely.

While permit requests eased a touch in August, they are running nearly 10 percent above starts. As a consequence, the number of units authorized but not started is continuing to grow.

Since builders are not taking out permits because it is fun to visit their local government office and pay fees, we can conclude that there should be a solid rise in construction in the months to come.

Indeed, the National Association of Home Builders/Wells Fargo confidence index hit a six-year high in September.

Rising optimism is being backed by improving construction, and that just about sums it all up.

MARKETS AND FED POLICY IMPLICATIONS: Sometimes perception lags reality, and that seems to be the case with housing.

If you said that activity rose by 20 percent in any other industry, the impression would be that the conditions are booming. In housing, it is still said to be in a recession.

To some extent, both are true, but the level of starts needs to rise at least another 40 percent before we can say the sector is in decent shape.

However, it is hard to argue with the forward momentum we are seeing in housing. If the new construction portion of the market is coming back, it is likely that we will start seeing more improvement in the existing home numbers, as these two sectors are linked.

Indeed, it has been the extreme weakness in existing housing that has depressed construction, since the low prices of distressed homes have made it difficult for builders to compete. That seems to be changing.

And we cannot forget that the Fed is putting on a full court press to drive down mortgage rates further. That can hardly hurt.

The markets should recognize this turn, but with the election and world economic uncertainty holding everyone’s attention, it is not clear what role housing will play in investors’ outlooks.

© 2018 Newsmax Finance. All rights reserved.

1Like our page
The steady progress in the housing market continues with the homebuilders’ optimism hitting a six-year high, and the improvement should continue.
Wednesday, 19 September 2012 10:07 AM
Newsmax Media, Inc.

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

© Newsmax Media, Inc.
All Rights Reserved