NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
INDICATOR: November Housing Starts and Permits
KEY DATA: Starts: +9.3%; 1-Family: +2.3%; Multi-Family: +25.3; Permits: +5.7%; 1-Family: +1.6%; Multi-Family: +13.9%
IN A NUTSHELL: “The slow process of getting back to normal seems to be underway as home construction is picking up some steam.”
WHAT IT MEANS: A major constraint to better economic strength has been the weak housing market. With so many distress homes on the market it is difficult for builders to compete. That reality still exists and is likely to continue that way for quite some time which means the pathway from disaster to health will be slow. But finally, it appears that the process of healing is underway. Housing starts jumped in November led by a huge increase in multi-family activity. With so many people out of the market and mortgages hard to get, a growing number of households are looking to rent so this segment of the market should remain strong. But there is also a steady upward trend in single-family construction as well. Looking across the nation, there was a huge increase in the Northeast that looks to be a bit overestimated. That could mean some reduction in December. Starts in the West were robust as well, they were up moderately in the South but down sharply in the Midwest. Looking outward, permit requests continue to rise and that means better construction in the months ahead. Builders are not requesting permits unless they intend to use them and the number of units authorized but not started keeps going down. We have begun to see that as the number of units under construction has increased.
MARKETS AND FED POLICY IMPLICATIONS: This was a surprisingly strong report continuing the trend of better than expected numbers. Home construction needs to improve if job growth is to pick up and that seems to be the case. While it may take two more years to return to decent levels of construction, the improvement over the next few years will add moderately to growth. But more importantly, it is estimated that an additional 100,000 starts will add roughly 250,000 new jobs and we are likely to see that increase in 2012. That bodes well for employment growth. Since these tend to be well paid positions, income growth should be bolstered as well. Thus, investors should take heart that if Europe doesn’t melt down and Congress figures out how to extend the payroll tax, the economy can continue to gain momentum. Indeed, if Europe was not such an unknown, the markets would be looking toward next year with some optimism instead the uncertainty now being felt.
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