Daily Economic Update: Housing Starts, Permits

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights housing starts and permits.

• The monthly report on housing construction showed mixed signals this morning.  While construction slipped from last month, permits rose for the third time in four months.  The strength in permitting reflects confidence on the part of builders in the long-term prospects for the market.  Permits rose 3.2% from last month and are up 7.8% from August of 2010.
• Housing starts slid 5.0% compared to last month led by a 13.5% drop in multi-family starts.  Multifamily starts tend to be volatile and this month’s decline could be related to a hurricane and torrential rains on the East Coast, but multi-family starts have shown a strong trend up to this month.  Compared to last year multi-family starts are down 14.0%, a reflection of the strength of multi-family starts last year at this time.  Rents continue to grow, which has driven this trend.
• Single-family starts eased 1.4% from last month, but are down only 2.3% from the same time last year.  The single-family sector dropped sharply over the last several years, so it has less room to contract relative to multifamily.  The large inventory of single family homes and encumbered demand will restrain home construction for some time, but pockets of growth will show up.  Permits for single-family construction rose five of the last six months and are up 2.0% from last year.
• While construction starts stumbled this month, the upward trend in permits to build reflects confidence in the long-term trend on the part of builders.  Rents are on the rise which should help demand for single family homes, but tight lending conditions and concerns about the economy limit purchases, while the large overhang of REOs and homes in foreclosure will sideline many builders in the near-term.  Limited construction will help to stabilize home prices, but it will also constrain much needed employment growth.