Housing starts and permits rose in March to levels last seen in mid-2008. Single family starts fell very slightly but the decline was concentrated completely in the Midwest and off of an unusually high February figure. On a quarter-to-quarter basis, single family starts are up 9% in the US and from 4% to 22% across the regions.
The most encouraging news was in the permit data, which increased in both single family and multifamily construction and in three of the four Census regions.
Single family permits were up 5.6 % and at the highest level they’ve been in a year and a half. More importantly, permits drawn in March are very unlikely to result in homes eligible for the home buyer credit. The surge suggests builders are confident that there will be home buyers after the credit expires. February starts and permits were also revised up 7% to 4% respectively and changed the February decline to an increase over January. The initial impressions that February numbers were depressed beyond what the unusual weather would suggest have proven to be wrong.
The improvement reverses some of the growing pessimism that the housing sector was falling back into a double dip. Builders appear confident enough to take out permits on homes that will be sold without tax incentive. Continued low mortgage rates and very competitive prices will eventually induce buyers back into the market. Low inventories of new homes require builders to get back to building if they are to have any inventory to sell.
However even with this relatively good news, the housing market has significant headwinds to overcome. Builders cannot get production credit to build homes so some needed inventory will not get built in reviving markets and that could eventually lead to shortages and house price increases. That is an unfortunate method for correcting an overly suppressive lending environment but it could happen in selected markets. Even if builders get credit and a willing buyer, appraisals are low because appraisers are using foreclosures inappropriately and also overreacting to past concerns of over-evaluations. Finally, home buyers must have good credit and significant down payments, especially if they use conventional or jumbo financing.
At a seasonally-adjusted annual rate of 626,000 housing starts, we are still only about one-third of the way back to a “normal” production level. All-in-all, the March report is a good sign that home building will not fall backward, but still has a long, long way to go before healed.