US Housing Starts Improve

The latest Commerce Department reports shows that U.S. housing starts are on the upswing, although experts note that basing predictions on data so early in the year may lead to drawing erroneous conclusions. Even so, single-family home construction starts have climbed more than 27% when compared to the same time last year, which competes with levels not seen since 2008. Permit issuance is also up and is tracking closely to starts, although both numbers still remain at one-third the amount seen prior to the start of the U.S. recession in 2006. For more on this continue reading the following article from Iacono Research. 

The Commerce Department reported(.pdf) that housing starts rose 0.8 percent in February to an annual rate of 917,000 units and permits for new construction, a key leading indicator for the home building industry, jumped 4.6 percent to a rate of 946,000, the highest level since June 2008.
From year ago levels, housing starts are up 27.7 percent and permit issuance is 33.8 percent higher.



Starts for single-family homes rose 0.5 percent to a rate of 618,000 units, also the highest level since 2008, accounting for about two-thirds of the overall total, however, home building remains about one-third below the pre-housing bubble pace of about 1.5 million units per year.

It is once again worth pointing out that not too much should be inferred from housing data at this time of the year due to dramatically lower activity in most of the country during the winter months and the outsized impact of seasonal adjustments. Nonetheless, this offers more evidence of ongoing improvement in the housing market as builders ramp up their plans for new construction in the months ahead.

This blog post was republished with permission from Tim Iacono. 

New Research Predicts Housing Construction Recovery in 2014

Analysts at the San Francisco Branch of the Federal Reserve have authored a research paper detailing their position that the U.S. housing construction market will not fully recover until 2014. Even this estimate, however, is based upon a generous assumption that the number of foreclosed homes will decline by 50,000 every quarter starting in 2012. The estimate also assumes the adoption of policies that will help homeowners avoid foreclosures as the market moves forward. House prices must stabilize and then begin rising before housing starts can start to improve, because it is harder for new home prices to compete with those of distressed resale homes. For more on this continue reading the following article from Economist’s View.

There's a new paper from the San Francisco Fed discussing how long it will take for residential construction to rebound to normal levels. Here's the abstract:

When Will Residential Construction Rebound?, by William Hedberg and John Krainer, FRBSF Economic Letter: Over the past several years, U.S. housing starts have dropped to around 400,000 units at an annualized rate, the lowest level in decades. A simple model of housing supply that takes into account residential mortgage foreclosures suggests that housing starts will return to their long-run average by about 2014 if house prices first stabilize and then begin appreciating, and the bloated inventory of foreclosed properties declines.

The paper notes that price adjustment alone is not enough, "a significant easing of the drag on housing stemming from the inventory of foreclosed homes is also needed." For example, in this graph showing the predicted path for housing starts, the red line assumes a 50,000 per quarter decline in the inventory of foreclosed homes starting in 2012, which as the paper notes is an optimistic assumption. The black line assumes no decline at all. When foreclosures decline as assumed for the red line, the recovery time improves substantially (but note that the prediction of a recovery by 2014 depends upon the optimistic assumption about how fast foreclosures will drop):

An implication of this research is that polices that help homeowners escape foreclosure would speed the recovery of the housing market.

This blog post was republished with permission from The Economist's View.

New Home Market Still Troubled Despite Upswing

Tim Iacono points out that although the new home sales increased in June, it follows record lows and is still the second worst since 1963. When the numbers are put into context they indicate a very troubled market for new homes. See the following post from The Mess That Greenspan Made.

It appears as though the U.S. housing market has finally turned the corner as the Census Bureau reported(.pdf) a short while ago that new home sales surged 24 percent in June, the biggest monthly increase in almost six decades of record keeping.



This stunning increase has caused housing bears across the land to “throw in the towel”, retracting recent predictions of a double-dip decline for home prices, and the mainstream financial media is overflowing with glowing headlines about the resurgence of the nation’s housing market as shown below.

Here’s a sampling:



Not!


To their credit, all of these reports note right up front that the “surge” is simply the not-too-surprising move upward from what can only be described as a virtual collapse in home sales during May, just after the homebuyer tax credit expired. In fact, all but one of the above reports also notes the downwardly revised April-to-May home sales plunge of some 37 percent, even worse than the 32 percent nose-dive previously reported.

But, that doesn’t excuse the headlines…

There’s no reason to provide a title that does not include the words “from record lows” and not doing so is really just irresponsible and, kind of silly.

The plot of new home sales normally seen here looks like this, the most recent activity put into its proper historical context, what is clearly a very troubled market for new homes:



As it turns out, the June annualized rate of 330,000 new homes sales is the second worst total since 1963, up 24 percent from the new record low rate of 267,000 reported in May.

This post has been republished from Tim Iacono's blog, The Mess That Greenspan Made.