Is the Housing Market Recovering?

There’s a mixed message in February’s Housing Starts data and it may be a good sign for home sellers in the near-term.

As reported by the government, new home construction rose by 22 percent last month.  The press is running with the headline number, calling it evidence of a market bottom.

A more thorough inspection, however, reveals a different story.

The 22 percent figure applies to all homes built — including apartment building units.  Isolating residential units, February’s housing starts rose by just 1 percent.  Furthermore, the data’s margin of error is 11 percent.

Statistically, we can’t know if residential housing starts really rose last month, or if it fell instead.  What we do know, though, is that the number of building permit requests rose.

Permits to build single-family homes were up 11 percent in February nationwide.

To home sellers, the rise in building permits may confirm that a housing market turnaround is already underway.  Builders wouldn’t be putting new inventory on the market, after all, without being sure of their ability to sell it 9 months hence, and construction lenders would not be giving them the money to do so.

The headline figure of 22 percent is attractive, but it’s not completely honest.  It’s not the number of housing starts that matter so much right now as the number of housing permits.   A rise in permits signals that homebuilders — a group that’s lost a lot of money in the last 2 years — think the worst of housing is already over. If the Fed’s actions at their meetings this week echo it, it may well confirm that theory.

(Image courtesy: The Wall Street Journal Online)