Permits for single-family homes are surging forward to their highest levels since before the recession! This is a major indicator that U.S. homebuilding is finally undergoing a revival – and it’s coming not a moment too soon, with the 2019 overall housing supply shrinking by 11%, according to the Census Bureau.
Surprisingly, only half as many houses are built now per worker compared with the 1960s, according to The Economist. Part of the reason is that most new construction is taking place in the most expensive markets, especially the Pacific Northwest. U.S. new-home construction remained robust in January and applications to build jumped to the highest level since 2007 as low mortgage rates and a solid labor market continued to fuel housing demand. It won’t happen overnight, but the housing shortfall might be on its way to be resolved.
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Starts of multifamily homes, a category that tends to be volatile and includes apartment buildings and condominiums, edged up 0.7% to the highest level since 1986. Permits surged 14.6% to a 564,000 pace.
The housing market continues to heat up. Recently released statistics show that new housing permits are up over 9% from last month and near a 13 year high. New housing starts are up over 21% from this time last year. Keep in mind that last month was the best reading in 14 years.
Back in 2007, the UCLA economist Ed Leamer wrote a paper called “Housing is the Business Cycle.” To wit, “For long-run growth, residential investment is pretty inconsequential, but for the wiggles, we call recessions and recoveries, residential investment is very very important.” With this in mind, single-family building permits have jumped to 987,000 units SAAR, up for nine consecutive months and 20.2% over the last year. Household formations have undershot demographics and we expect more growth in the quarters ahead, albeit at a slower pace.
Rising permits imply more construction activity this year. Today’s data should make mincemeat of anyone that was holding on to a recession call for this year or next. Recession risks are lower than usual in the US.
According to Bloomberg, the key insights to zoom in on are:
- While the pace of construction eased in January, the figures suggest the housing market remains a bright spot for the U.S. economy amid sluggish business investment. When paired with continued strength in housing permits, current and planned construction should help mitigate a lean supply of housing.
- Mild weather likely played a role in both the December and January readings as warmer temperatures supported construction in months that typically slow homebuilding in areas like the Northeast.
- Single-family starts declined 5.9% to a 1.01 million pace, though permits climbed to a 987,000 rate that was also the highest since 2007.
- Starts of multifamily homes, a category that tends to be volatile and includes apartment buildings and condominiums, edged up 0.7% to the highest level since 1986. Permits surged 14.6% to a 564,000 pace.
- Private data released Tuesday showed sentiment among homebuilders eased slightly in February, but held near a two-decade high, as gauges of sales and prospective buyer traffic cooled. Recent figures from the University of Michigan showed home-buying attitudes in February advanced to the highest level since 2017.
- By region, new-home construction fell in the South and Midwest. Starts increased in the Northeast to the highest since June 2015 and climbed in the West the best level since the end of 2006.
- The report, produced jointly by the U.S. Census Bureau and the Department of Housing and Urban Development, has a wide margin of error, with a 90% chance that the headline figure was between a 16.9% drop and a 9.7% increase.
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