Hidden Strength
Last month the residential construction numbers for April were gratifying; building permits were up 10.1% and housing starts increased by 20.2%. But the caveat, while unspoken, was there. The data were coming off of a dreadful winter in both the Midwest and South and it was indeed those regions that accounted for much of the gain. Would the numbers hold up or be just another act in the long running drama of construction ups and downs?
The May numbers came out on Tuesday and while they were not quite as good as in April–housing starts in fact declined–one has to look behind the numbers to see why this spring looks like a solid one for home construction. First was the headline revision. April housing starts, originally reported at a seasonally adjusted annual rate of 1,135,000, a 20.2% month-over-month surge; were enough to make analysts giddy. This month’s revision took the rate up to 1,165,000, a March to April increase of 22.2%. Even though the reported 1,036,000 starts in May fell back by 11.1% it must be remembered that they had a tough act to follow and they are still 7.9% above those in March.
Building permits rose another 11.8 percent in May on top of a double digit gain the previous month and are now at a seasonally adjusted annual rate of 1,275,000 units. Further, at the end of May there were an estimated 144,000 permits issued earlier but for which construction had not yet begun. We have to assume that most of those permits will morph into housing starts in the next few months.
Behind the permit numbers is a historical context as well. In 2004 and 2005 housing permits topped 2 million and starts were at that level in 2005. Both metrics then hit the skids, falling below 1 million 2008 and staying there until last year. Permits in May were at the highest rate since August 2007 and housing starts have now been above the 1 million unit rate for seven of the last nine months. Good times ahead, it seems.
Builders are feeling the love. NAHB’s Housing Market Index, a measure of builder confidence, jumped five points this month and two of its three composite indices were at the highest levels since late 2005.