Surprise Increase in New Home Starts, But Don't Expect Things to Change Anytime Soon
The morning that the news broke about the jump in the number of new housing starts, my phone started to ring. To my clients, any positive news these days pretty much has them calling me for answers or advice. An unpredicted rise in the number of new home starts is pretty big news, and this past week was no exception.
After falling for the last 8 months, housing starts posted a significant surge during the month of February, according to a government report released this past week. Economists, who thought the month was going to be another fall off like previous months, were rather surprised by the 22% increase from January, and the first increase in housing starts since last June. In fact, economists were expecting housing starts to decline to roughly 450,000, and did not foresee the seasonally adjusted annual rate of 583,000 units at all.
Another positive sign was the surprising increase in the number of building permits posted for the month. Building permits, which is considered by industry analysts to be a sign of things to come in regard to construction activity, increased by 3%, to a rate of 547,000, as opposed to the economists expectations that permits would fall to 500,000.
Housing starts, which measure the number of homes under construction, are not only a measure of supply that will hit the market in the future, but also an indicator of workforce jobs and general housing activity. One can more easily measure the housing market by comparing housing starts in previous years to the state of the market today. For example, 2008 was the worst year for home starts since record keeping began, with nearly a 42% decline from the previous year and nearly a 70% change since the height of the market during 2004.
But as surprising as these numbers were, many are still cautioning that this increase in housing starts simply represents a short-lived rebound versus an indication of a housing market recovery. The increase in housing starts was mostly driven by an increase in construction of multi-family homes, which is considered by most to be extremely volatile month over month. In fact, the new construction starts of single-family homes, often viewed as the cornerstone of the housing markets, increased only slightly more than 1% over the previous month. We should also take into account that construction activity remains nearly 50% below where it was a year ago and further include all the other problems the housing industry still faces, which will further impede any real progress in a full blown housing market recovery.
New home starts surged nearly 90% from the previous month in the Northeast, and increases were also seen in the Southern and Midwest sections of the country. It should also be noted that not all areas of the country posted positive gains for new home starts. While most of the country enjoyed strong numbers, areas in the West felt a decrease of almost 25% from the previous month.
