With prices continuing to fall on existing homes in a large part due to excess supply, it would seem the last thing the economy needs is more new homes coming on the market. On the other hand, there are growing areas in the U.S. that need more housing.
So it is logical that there is a minimal amount of new homes which must be built. At some point the new home construction market will bottom – and the negative spiral of lower and lower construction spending will end. With this in mind, let’s look at the March 2011 new housing data.
Looking at the new housing unit completions – it seems housing’s decline continues. What is even worse is that historically March is usually better than February – and this year was the opposite. One month is not an trend, and March’s housing completions could have been affected by winter weather.
In the midst of this bad data are positive signs that this downward trend may end in the coming months. Econintersect has analyzed this before. Construction of new homes is limited by the number of construction permits issued and permits have been growing relative to completions, implying a coming increase over recent construction levels.
A spurt of residential housing permits always occurs at spring time as evidenced on the above graph. Builders in many areas do not want to build in the winter and get their permits for summer and fall completions in the spring. But it is the trend line (and the lower volatility) that should catch your eye.
The spring burst of building permits is not large, and this year is not impressive.
Permits were down YoY in March 2011, but up MoM because permits issued are normally significantly higher in March than February. Overall, the headline words from the US Census on building permits seem misleading.
BUILDING PERMITS – Privately-owned housing units authorized by building permits in March were at a seasonally adjusted annual rate of 594,000. This is 11.2 percent (±2.6%) above the revised February rate of 534,000, but is 13.3 percent (±1.3%) below the March 2010 estimate of 685,000. Single-family authorizations in March were at a rate of 405,000; this is 5.7 percent (±1.1%) above the revised February figure of 383,000. Authorizations of units in buildings with five units or more were at a rate of 173,000 in March.
HOUSING STARTS – Privately-owned housing starts in March were at a seasonally adjusted annual rate of 549,000. This is 7.2 percent (±18.0%)* above the 18.0%) revised February estimate of 512,000, but is 13.4 percent (±9.1%) below the March 2010 rate of 634,000. Single-family housing starts in March were at a rate of 422,000; this is 7.7 percent (±15.0%)* above the revised February figure of 392,000. The March rate for units in buildings with five units or more was 117,000.
HOUSING COMPLETIONS – Privately-owned housing completions in March were at a seasonally adjusted annual rate of 509,000. This is 14.2 percent (±13.9%) below the revised February estimate of 593,000 and is 20.8 percent (±9.6%) below the March 2010 rate of 643,000. Single-family housing completions in March were at a rate of 374,000; this is 22.2 percent (±9.4%) below the revised February rate of 481,000. The March rate for units in buildings with five units or more was 130,000.
March 2011 new housing unit data is far from impressive, but does lead Econintersect to believe the end of the decline in new home construction could be near.
Economic Data Points to Growing Profitablity in Residential Builders by John Lounsbury and Steven Hansen
Residential Construction Still Seeking a Bottom by Steven Hansen
CoreLogic: Home Prices Down 7 Straight Months by Steven Hansen
Looking Past the Case-Shiller: It’s all about Supply by Scott Sambucci
New Home Sales Continuing to Decline by Steven Hansen
The Great Debate©: Residential Construction is Dead – Or Is It? by William Wheaton and Gleb Nechayev
New Housing Permits Offer Strange Data by Steven Hansen
The Great Debate©: Will Housing be a Drag on the Economy in 2011? Part 1 by John Lounsbury
The Great Debate©: Will Housing be a Drag on the Economy in 2011? Part 2 by John Lounsbury