The headline residential building permits and housing starts very soft - well under expectations. Our analysis shows little good news in this sector.
Analyst Opinion of Residential Building
The backward revisions this month were moderately up.The nature of this industry normally has large variations from month to month so the rolling averages are the best way to view this series - and it shows permits collapsing and completions surging - not good as it is showing a contracting sector.
Looking at residential construction employment, the year-over-year growth of employment is slightly BELOW the growth of housing starts. This is easily explained with the poor growth in housing starts.
The unadjusted rate of annual growth for building permits in the last 12 months has been around 10% - it is +0.1 % this month.
Construction completions are HIGHER than permits this month - the first time in 22 months. This broke a 22 month string where permits exceed completions.
Unadjusted 3 month rolling averages for permits (comparing the current averages to the averages one year ago) is +4.5 % (permits) and +9.8 % (construction completions):
3 month Rolling Average for Year-over-Year Growth Unadjusted Data
Unadjusted 3 Month Rolling Average of Year-over-Year Growth - Building Permit (blue line) and Construction Completions (red line)
Building permits growth decelerated 2.4 % month-over-month, and is up 0.1 % year-over-year.
Single family building permits is up 11.6 % year-over-year.
Construction completions accelerated 16.4 % month-over-month, up 24.2 % year-over-year.
building permits down 4.7 % month-over-month, down 6.6 % year-over-year
construction completions up 15.4 % month-over-month, up 25.0 % year-over-year.
the market expected (from Bloomberg / Econoday):
1.125 M to 1.290 M
1.130 M to 1.260 M
Note that Econintersect analysis herein is based on UNADJUSTED data - not the headline seasonally adjusted data.
When more building permits are issued than residences completed - the industry is expanding - and this expansion was underway for three years (except for the last two months in 2014). In the graph below, any value above zero shows more permits are being issued than completions.
Difference Between New Home Building Permits and Construction Completions (unadjusted)
Although the data is noisy - the trends vary depending on the periods selected.
Unadjusted Year-over-Year Change New Homes - Permits (blue line) and Construction Completions (red line)
Other points to take away from the data:
Before we start thinking all is well, the residential home industry is about half of the pre-2005 peak.
Seasonally Adjusted Residential Building Permits
Apartments accounted for 35.9 % of all building permits.
Unadjusted Ratio Apartment Permits (structures with 5 or more units) to Total Permits - higher number means more Apartments
Caveats on the use of Building Permits Data
This is a non-monetary index. There is significant revision. Per US Census:
In interpreting changes in the statistics in this release, note that month-to-month changes in seasonally adjusted statistics often show movements which may be irregular. It may take 3 months to establish an underlying trend for building permit authorizations, 6 months for total starts, and 5 months for total completions. The statistics in this release are estimated from sample surveys and are subject to sampling variability as well as nonsampling error including bias and variance from response, nonreporting, and undercoverage. Estimated relative standard errors of the most recent data are shown in the tables. Whenever a statement such as "2.5 percent (±3.2%) above" appears in the text, this indicates the range (-0.7 to +5.7 percent) in which the actual percent change is likely to have occurred. All ranges given for percent changes are 90-percent confidence intervals and account only for sampling variability. If a range does not contain zero, the change is statistically significant. If it does contain zero, the change is not statistically significant; that is, it is uncertain whether there was an increase or decrease. The same policies apply to the confidence intervals for percent changes shown in the tables. On average, the preliminary seasonally adjusted estimates of total building permits, housing starts and housing completions are revised about three percent or less. Explanations of confidence intervals and sampling variability can be found on our web site listed above.
This sector expands when more housing permits are issued than houses completed. The data is not necessarily accurate in real time, however. For 2011, there were more building permits than construction completions (total over a complete year) for the first year since 2005.
2005 = 225K more permits than construction completions
2006 = 140K more construction completions than permits
2007 = 104K more construction completions than permits
2008 = 214K more construction completions than permits
2009 = 211K more construction completions than permits
2010 = 47K more construction completions than permits
2011 = 39K more permits than construction completions
2012 = 181K more permits than construction completions
2013 = 227K more permits than construction completions
2014 = 168K more permits than construction completions
2015 = 210K more permits than construction completions
This data in this series is created by survey - not by hard data:
Permits - A monthly survey of 9,000 selected permit-issuing places; and an annual census of an additional 11,000 permit places that are not in the monthly sample. The monthly sample of permit-issuing places was selected using a stratified systematic procedure. All permit places located in selected large metropolitan areas were selected with certainty. The remaining places were stratified by state. Places that exceed a cutoff value, which varies by state, were selected with certainty. Remaining places were sampled at a rate of 1 in 10.
Construction Completions - To provide nationwide coverage of building activity, a multi-stage stratified random sample procedure was used to select approximately 900 building permit-issuing offices, and a sample of more than 70 land areas not covered by building permits. Each month, for permit-issuing places, a sample of residential building permits is selected from each of the sampled permit offices. The probability of selecting a permit is proportional to the number of units authorized by the permit. Permits for one-to-four-unit buildings are sampled at an overall rate of 1 in 50. All permits authorizing buildings with 5 or more housing units in the sampled permit offices are selected. Each month, for areas that do not require building permits, field representatives conduct a road canvass in each of the sampled non-permit land areas to identify the start of new buildings. All new residential buildings found are selected for the survey. Once a permit or building is selected, a field representative contacts the owner or builder, by telephone or in person, to conduct the interview each month as necessary. Contact continues until the project is either completed or abandoned. If a single-family home is not sold by the time of completion, the project will continue to be followed until the sale occurs. Each month, interviews are required for about half of the buildings currently being followed up. Each month, housing starts, completions, and sales estimates derived from this survey are adjusted by the total numbers of authorized housing units (obtained from the Building Permits Survey) to develop national and regional estimates. Estimates are adjusted to reflect variations by region and type of construction, and to account for late reports and houses started or sold before a permit has been issued. Reported data are seasonally adjusted. Monthly estimates are made for all permit-issuing places nationwide. If a survey report is not received, missing data on permits for new construction are imputed except for places that are also selected for the Survey of Construction (SOC). For these places, SOC permit data are used. We request assistance from State Data Centers to encourage jurisdictions to respond.
The US Census uses a multi-year methodology to seasonally adjust their data. Econintersectuses a simpler year-over-year analysis to seasonally adjust the data - the fear being that a major depression, government interference (incentives) in the housing markets, and other new normal effects are distorting the historical multi-year reference data.
Econintersect determines the month-over-month change by subtracting the current month's year-over-year change from the previous month's year-over-year change. This is the best of the bad options available to determine month-over-month trends - as the preferred methodology would be to use multi-year data (but the New Normal effects and the Great Recession distort historical data).
To say this sector is in a depression is an understatement. Please refer to the PERMIT FRED graph above.
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