Home Construction Back on Track

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses housing construction.

• Home construction was back on track in February, resuming its upward trend, but more importantly permits for construction jumped signaling a stronger trend ahead.
• Starts are important as construction is highly correlated with job creation and directly impacts housing supply.
• While the multi- family component increased modestly after a sharp decline in January, the single family portion rose 0.5% erasing the modest 0.3% pull-back in January.  Single family construction has lagged the historical average for several years as builders competed with an oversupply of homes brought to the market in distress (e.g. short sales and foreclosures).
• Permits for construction of single family units rose 2.7% from January to February and are 25.5% higher than a year earlier.  The strong monthly growth of permits suggests continued strength of construction later in 2013.
• Single family construction continues to grow in strength, but at levels that are well below the historic average.  Builder and lender confidence in local conditions is a positive indicator for inventories, sales volumes, and price trends in these markets.  Slow building may cause prices to surge in certain niche markets, but as prices increase more underwater owners and traditional sellers will be drawn to the market easing supply constraints.
• Furthermore, new construction and the economic multiplier that it generates will help to spur further job creation and income growth ameliorating some of the impacts of Federal sequestration.