Clear Indication of Housing Industry Bottom in August 2011

Headlines for new residence construction data in August 2011 say permits grew 3.2% month-over-month, while completions contracted 2.7%. Unfortunately, readers are dumber after reading the headlines.  What is not clear is the story is that there is a clear recovery underway in residential construction.

Building permits have exceeded construction completions for six months straight.  There is some bad news – the trend line is nearing the bottom of the trend channel.  Still the trend channel since the end of 2008 is intact.

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The media has picked up on a reported 5% decline in housing starts (true).  Housing starts are a funny number which Econintersect ignores as this number wobbles due to weather issues (media blames this decline on Hurricane Irene but this does not explain the decline in the West and Midwest).   Once a residence is buttoned up, weather does not become a significant factor – it has little effect on completions and this is a less volatile number to follow.

If more building permits are issued than construction completions, months down the road completions grow.  The data clearly is showing an expansion in residential real estate which translates to a GDP tailwind.

The headlines may lead one to believe that construction completion decline of 2.7% is bad news.  It is not bad news when permits are increasing.

Yet it is clear that both permits and construction completions are growing – and construction completions are only less good this month.

Other takeaways from the data:

  • Before we start thinking all is well, the residential home industry has shrunk by two-thirds since the home crisis hit in 2005.
  • Apartment permits were less good this month, but hey – they are growing 20.2% year-over-year.  This is the 17th straight month of year-over-year growth for multi-residence building permits.

The US Census uses a complicated formula to seasonally adjust their data.  Econintersect uses a simple year-over-year analysis of the US Census unadjusted data.

Econintersect notes that our current economic weakness no doubt will weigh on this better data as the year continues.  Enjoy the better news for now.

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