March 24, 2017

Housing Construction Ticks Up in March

During March, construction of new homes increased 7.2%, according to data released today [.pdf] from the Housing Department and Census Bureau. The annual rate of housing starts in March totaled 549,000, compared to a revised rate of 512,000 in February. Despite this modest increase, a broader comparison shows the construction rate of new homes in March is 13.4% below the rate in March 2010.

In other words, March brought better results in residential construction than February, but the results in March remain relatively weak compared to historic levels. From 1959 to 2007, the average annual rate for housing starts was 1,5 million [.xls]. This annual rate for the first quarter of 2011 equals 563,000, which shows the first quarter of 2011 is currently 275% below the historic equilibrium.

Clearly, a grain of salt ought to accompany the claim that residential construction increased during March. February 2011 brought the third-lowest rate of construction levels since record keeping began in 1959, whereas March 2011 is the eighth lowest. This extremely low nature of February allows for a large percentage change in the monthly results even when that change is not great. This means we should not interpret the modest boost in March as any sort of key turnaround in residential construction, but at least it is an improvement.

In addition to the modest improvement in housing starts during March, the amount of building permits issued also increased. The amount of issued building permits during March increased 11.2% compared to February. This is also a positive indicator because the direction in the amount of building permits issued during a month generally indicates the direction in housing starts for the next month, especially when that change is 10% or more. With an 11.2% increase in March, residential construction results for April will likely bring another modest increase in housing starts.

Even though there were modest improvements in buildings permits and housing starts in March, a recovery in the housing market would not only feature consistent improvements in these construction statistics, but also significant accelerations in these statistics. Residential construction statistics are implications of the broader health of the housing market. As a result, historically meager construction statistics continue to show the meager health of the housing market.

Important indicators for the status of the housing market include: foreclosure filings, home sales, home prices, credit lending, and of course unemployment. Among these key indicators, positive statistics have recently been inconsistent, as well as few and far between. Without these key indicators showing consistent improvements, the residential construction statistics will continue to be significantly below its historic equilibrium.

A monthly survey from the National Home Builders Association similarly shows hesitation toward the health of the housing market. The NHBA has conducted a monthly survey for the past twenty years of home builders to determine whether builders view the housing market as good or poor for the next six months. A rate above fifty signals good conditions, while anything below fifty signals poor conditions. The latest monthly survey shows a poor rate of 16, which is a one point lower than the previous survey.

Overall, residential construction statistics brought modest improvements in March, but these improvements remain well below the historic equilibrium. While the amount of issued permits in March indicates a similar improvement for housing starts in April, a prosperous housing market would bring significant accelerations, yet the US housing market is still far from reaching a historically prosperous level.

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