Apartments the Story in Residential Building Permits In October 2011

Building permits and construction completions in October 2011  show the industry is not rebounding as fast as hoped even though the headlines say building permits are up strongly.

US Census Headlines:

  • building permit  up 10.9% month-over-month, up 17.7% year-over-year
  • construction completions down 5.7% month-over-month, down 2.8% year-over-year

Econintersect Analysis:

  • Building permits are  up 6.7% month-over-month, up 16.4% year-over-year.
  • construction completions are down 1.5% month-over-month, down 3.8% 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.  There has been backward revision of data – and since July 2011, the data has been noisy with permits and completions almost in balance.

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 grew 51.0% year-over-year and 12.1% month-over-month. In October, Apartments accounted for 30.7% of all building permits, while only 20.0% of construction completions.

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

Caveats on the use of Building Permits Data

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 data.

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.

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