The Census Bureau and the U.S. Department of Housing and Urban Development said that new residential construction dropped from an annualized 888,000 units in October to 861,000 in November. This essentially puts it back to the level seen in September, with 863,000 starts that month. Despite the 3 percent decline in November, the longer-term trend remains a positive one, with the pace of activity in September, October, and November well above what was seen in the preceding months. (See the attached graphic.) To keep it in perspective, housing starts were 706,000 as recently as May.
Fewer single-family housing starts were behind November’s lower reading. New single-family residential construction declined from 589,000 to 565,000 for the month, a 4.1 percent decrease. This slower pace was mostly seen in the Midwest and West, with increased starts in the Northeast and South. As with the larger trend, though, single-family starts continue to have an upward trajectory when you look at the year as a whole. (Its low point of the year was in February, with 470,000 starts.)
New multi-family residential construction edged only marginally lower, down from 299,000 to 296,000. Multi-family starts were weaker in the Northeast and West for the month, but stronger in the Midwest and South. Illustrating the increased pace in this figure overall, multi-family housing starts were 193,000 just six months ago in May.
The other reason to put a “happy face” on these numbers was the rise in housing permits. New residential permits increased from 868,000 in October to 899,000 in November. This is the fastest pace since August 2008, but also just below the level observed two months ago, with 890,000 permits seen in September. The importance of these figures is that permits are a proxy for upcoming activity. The increase in November was mainly due to more multi-family unit permits, up from 302,000 to 334,000 for the month. Single-family permitting was virtually unchanged.
Overall, housing continues to be a bright spot in the economy, even with the slower pace in starts observed in November. The slow-but-steady increases in activity are helping to improve builder confidence, as seen yesterday, and boosting economic growth. I would expect these trends to continue moving into the new year, with housing starts expected to grow to at least 950,000 by the end of 2013.
Chad Moutray is chief economist, National Association of Manufacturers.