The Census Bureau and the U.S. Department of Housing and Urban Development said that new residential construction moved a little higher, up from an annualized 910,000 in January to 917,000 in February. The increase stemmed from slightly higher single-family and multi-family housing starts in the month.
New single-family starts rose from 615,000 to 618,000; whereas, starts for multi-family units inched up from 295,000 to 299,000. These gains were primarily in the Northeast and Midwest, with slower activity in the West and mixed results in the South.
When you assume that December’s multi-family unit starts of 365,000 were an outlier, it is clear that both single-family and multi-family construction figures are moving higher, continuing their upward trend. Overall, housing starts have risen 27.8 percent year-over-year, helping the sector recover from its weaknesses since the bursting of the housing bubble and providing a boost to overall economic growth.
The data on housing permits suggests that this upward movement should continue moving forward. Permitting rose from 904,000 in January to 946,000 to February, its fastest pace since June 2008 (when it was headed in the wrong direction). As with new starts, permits for both single-family and multi-family units were higher, up from 584,000 to 600,000 and 320,000 to 346,000, respectively.
Looking forward, I would still predict that housing starts will exceed 1 million units before the end of the year, and this report – while not showing rapid growth – tends to support the view that the residential sector is headed higher. There continue to be some issues in the housing sector, with some regions having persistent excess inventory challenges and finances still a problem for some would-be homeowners. Yet, residential construction has been a bright spot for much of the past year, and that should continue throughout 2013.
Despite this optimism moving forward, yesterday’s Housing Market Index (HMI) data from the National Association of Home Builders and Wells Fargo showed that builder confidence has leveled off so far this year. The HMI has dropped from its recent highs of 47 in December and January to 46 in February to 44 in March. The larger storyline – as with the housing starts and permits data discussed above – is the upward trend in builder confidence over the course of the past year; yet, it is also clear that there has been a pause in this upward movement in the past month or so. The index of single-family sales traffic edged somewhat lower from 51 in February to 47 in March.
In addition to the usual headwinds that this sector has faced since the economic downturn began, NAHB Chief Economist David Crowe also attributes some of the current challenges on infrastructure issues. He writes, “During the Great Recession, the industry lost home building firms, building material production capacity, workers who retreated to other sectors and the pipeline of developed lots. The road to a housing recovery will be a bumpy one until these issues are addressed, but in the meantime, builders are much more optimistic today than they were at this time last year.”
Chad Moutray is chief economist, National Association of Manufacturers.