Housing Starts

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 discusses housing starts.

• Housing starts fell a notch in February from one month ago, but are up solidly from February of last year.  The latest figure of 698,000 unit starts (on an annualized basis) is off 1 percent from January’s pace, but up 34 percent compared to one year ago.
• Housing starts have been averaging around 700,000 in the past four months.  The multifamily units are coming back more strongly than single-family units.  Based on rising apartment rents and due to the 50-year low in the inventory of newly constructed single-family homes for sale on the market, we should expect a faster pickup in housing starts.  However, the availability of construction loans remains difficult.
• With many banks having passed the ‘stress test’ last week, and given the huge cash reserves at banks, it seems inevitable for some loosening in construction loans as the year proceeds.  As such, there is likely to be further gains from this level with total starts forecasted to be 765,000 in 2012.  That would represent a good 25 percent jump from last year.  A slight increase in housing permit issuance in February is suggesting that an upward trend is developing.
• The long-term average for housing starts is about 1.5 million each year.  So today’s level is only about half of that historical average figure.
• Today’s data on housing starts are actual figures.  Yesterday’s data on homebuilder sentiment is the builders’ view.  Usually the sentiment and the actual data closely match.  However, they diverged in February as builders said they felt better though housing starts fell.
• Note that housing starts and new home sales are a small share of the overall home sales market.  The existing home sales market comprises about 90 percent of all home sales and that figure is on deck for release tomorrow.