It was a classic case of good news, bad news on the housing starts front in February, as groundbreaking activity rose, but permit activity slipped, a cautionary sign that construction could diminish again in the months to come.
Residential building firms broke ground on 1.1 million projects in February, according to a newly released report from the U.S. Department of Housing and Urban Development. That's a 5.2 percent increase on a seasonally adjusted basis from last year during the same period. Not since September have starts been this robust.
Stephen Stanley, chief economist at New York City-based broker dealer Amherst Pierpont Securities, said that the nation's housing supply can use all the starts it can get.
"The most important fundamental in the housing market is a shortfall of supply relative to demand," Stanley explained in a research note to clients, as reported by The Wall Street Journal. "There is only one way to fix that problem: more building."
Ed Brady, chairman at the National Association of Home Builders, indicated that the spurt in single-family construction is a positive sign after several months of underwhelming production.
"This month's report is consistent with positive builder sentiment and other economic indicators showing that the housing market continues to recover at a gradual pace," Crowe said.
Permits soar in Northeast, drop elsewhere
Still, the country's inventory shortfall is far from being resolved, as permit issuance – or lack thereof – was weak in February. Due largely to fewer issued in the multifamily segment, permits overall decreased 3.1 percent in the 29-day period, HUD reported. In terms of raw numbers, multifamily permits totaled 436,000, while single-family notched higher by 0.4 percent to 731,000.
Confirming the idea that all real estate is local, permit issuance varied depending on the region. In the Northeast, for instance – one of the more densely populated parts of the country – they increased by nearly 40.5 percent, the report detailed. But in the Midwest and South, permits diminished by 11 percent and 4 percent, respectively. The West saw a drop of 7 percent in permits administered.
Business has picked up in some circles
Construction professionals individually have had different experiences as well, like Terry Russell, chief executive of FrontDoor Communities. He told the Journal that new construction at his company has risen by 30 percent compared to the same time last year. At the present pace, his crew will build 240 residences all told – a near 50 percent increase from 2015.
Even though permit issuance is used as a forerunner of what's to come, some developers aren't sweating it.
"February's single-family gains indicate that this sector is strengthening in line with our forecast," said David Crowe, NAHB's chief economist. "As the U.S. economy firms, job creation continues and mortgage interest rates remain low, we should see further growth in housing production moving forward."
Mortgage rates have surprised in the new year, as the Federal Reserve gave indications they could rise due to the expectation that short-term interest rates would rise in 2016. During a recent Federal Open Market Committee Meeting, though, the Fed reined in that forecast.
In the meantime, 30-year fixed-rate mortgages continue to stay well below 4 percent. In its most recent Primary Mortgage Market Survey, Freddie Mac reported 30-year FRMs hit 3.7 percent for the seven-day period ending March 17, up for the third consecutive week.
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