Apartments Fuel November 2011 Residential Construction Growth

Building permits and construction completions in November 2011 show the industry is rebounding – and it is being fueled by apartments (structures with 5 or more units).

US Census Headlines:

  • building permit up 5.7% month-over-month, up 20.7% year-over-year
  • construction completions down 5.6% month-over-month, down 1.6% year-over-year

Econintersect Analysis:

  • Building permits are up 12.5% month-over-month, up 27.3% year-over-year.
  • construction completions are up 2.8% month-over-month, down 2.3% year-over-year.

This sector expands when more housing permits are issued than houses completed. This is the current situation. The data is not necessarily accurate in real time, however.  For 2011, there have been more building permits than construction completions (total over a complete year) for the first year since 2006.

For all of 2011 permits are clearly growing since the beginning of 2011, while construction completions have been down for the last two months, with no clear trend line for construction completions during the year.

Other points to take away 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 (structures with 5 or more units) grew 109.4% year-over-year and 65.1% month-over-month. In November, apartments accounted for 35.3% of all building permits, while only 16.7% of construction completions.
  • Single family building permits grew 4.1% year-over-year.

It appears that apartments (residential units of 5 or more) are fueling the “recovery” of the residential housing sector.

Caveats on the use of Building Permits Data

This is a non-monetary index.  Recently, the data has had moderate downward revisions one month after initial release. Therefore, the release data this month should not be taken too seriously until next month.

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. Econintersect uses 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.  The following graph is updated through October 2011 data.

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