March Housing Starts and Permits


Joel L. Naroff
President and Chief Economist

INDICATOR: March Housing Starts and Permits

KEY DATA: Starts: up 7%; 1-Family: -4.8%; Multi-Family: +31.1%; Permits: down 3.9%

IN A NUTSHELL: “Housing starts soared but the momentum may not be sustained as builders are taking out permits for new construction much more cautiously.”

WHAT IT MEANS: Wow. For the first time since June 2008, housing starts breached the one million units annualized pace. That is really good news as it points to strong construction activity, a key to stronger growth. The large increase was posted despite a slowdown in the Northeast. The Midwest and South were up about ten percent but the West rose much more modestly. Still, I am not irrationally exuberant about this report. First, all the gain came in the multi-family segment of the market. It would be nice if all components were up but I am not that worried since the data do bounce around. What concerns me are the permit numbers. They were down and for the past two months are running well below the construction pace. Also, the number of permits authorized but not yet used is also trending downward. Finally, both the number of homes under construction and that have been completed are up. Softer permit demand, lower permit inventory and higher supply do not bode well for future construction activity.

MARKETS AND FED POLICY IMPLICATIONS: This was a great report as far as first quarter GDP is concerned. Housing should add solidly to growth and we could be looking at a three percent rate. But the details are a concern for spring activity. I suspect we will see some slowing in residential construction though not a major turn down. In other words, don’t expect us to be above one million units on an annualized basis again for a while. With consumer confidence questionable, the tax increases and sequestration cuts kicking in, the outlook is for slower second quarter economic activity. That said, this is positive news for investors, who have to digest good inflation numbers but not so great manufacturing production data. Add that to the tragedy in Boston, where I lived for three years, and yesterday’s massive sell-off and who knows where the markets will go in the next few days.

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