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Housing Starts and Permits

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 starts and permits.

  • Data on housing starts and permits were released this morning by the US Census.  Starts eased for the second consecutive month, 5.8% from February to March on a seasonally adjusted and annualized basis, but remain stronger than the same month last year by 10.3%.  The bulk of the decline was on the multifamily side, 19.8%, but single family starts eased modestly.
  • Analysts had hoped for stronger numbers for starts in March, but the consecutive declines from January’s strong pace suggests that the unseasonably good weather over the winter may have pulled some building forward.  However, the steady year-over-year strength in starts points to a better year for construction overall in 2012 than 2011.
  • Permits were a different story.  They are not as susceptible to fluctuations driven by the weather.  Permits rose 4.5% in March from a month earlier and were up 30.1% compared to March of 2011.  The steady growth of permits suggests that builders are making plans for sustained construction later this year.
  • Data on industrial production (IP) was also released this month.  IP was flat in March compared to February, after strong readings all winter.  The manufacturing sector declined 0.2%, while construction fell 1.3%.  The decline in these figures may signal some weakening from the strong pace of GDP growth in December through February.
  • Industrial production and starts had been strong for several months, but the softening of manufacturing and construction suggests some near-term weakness.  Like manufacturing, construction is important for the housing market because it creates jobs and confidence.  The sharp decline in construction during the housing bust was a drag on GDP growth.  Modest improvement in construction not only eliminates that drag on GDP, but begins to add to GDP growth.  As GDP rises, so will jobs, the stock market, and the confidence consumers need to make large purchases like houses.  While construction and manufacturing may be off their heady figures from the winter, they are still strong relative to last year and point to stronger overall figures for 2012 compared to 2011.

Ken Fears, Director, Regional Economics and Housing Finance

Ken Fears is the Manager of Regional Economics and Housing Finance Policy. He focuses on regional and local market trends found in the Local Market Reports and the Market Watch Reports . He also writes on developments in the mortgage industry and foreclosures.

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