New Residential Construction in December 2010

The bottom line is that the housing market continues to bounce along the bottom (at least in terms of national totals). Today’s data did have a quirky permits number, but that could have been the result of builders rushing to file permits before the end of the year to avoid some new regulations in the states of Pennsylvania, New York, and California. Therefore, next month expect permits to retrace most of today’s gain.

When will the housing market start turning around? I won’t give my 2 cents, but several forecasters have weighed in recently. For instance, the January Blue Chip forecast (an average of many forecasters) calls for new housing starts to jump to 680,000 in 2011 from  588,000 in 2010, a 15.7 percent leap (not too shabby). This same group expects a further 31 percent increase in 2012 (definitely not shabby).

Below is some more specific information about today’s data release followed by some interesting information about the inventory of new homes and the length of time new homes stay on the market (both series suggest that significant headway has been made in reducing the inventory of new homes, which bodes well for future construction when demand picks up).

~Mark Doms, Chief Economist, U.S. Department of Commerce
January 19, 2011

Housing permits and starts were at historically low levels during the second half of 2010.

• December housing starts suggest that recovery continues to be weak.

Building permits jumped 16.7 percent in December. Private sector forecasters had expected a 2.9 percent increase.

• Scheduled changes in building codes in January in California, New York, and Pennsylvania could have been responsible for much of the December increase, as builders took out permits before the new codes came into effect.

Housing starts declined 4.3 percent after rising 3.8 percent in November. Private sector forecasters had expected starts to be unchanged.

• Starts for single-family homes dropped 9.0 percent in December to their lowest level in nineteen months (May 2009).
• Starts for multi-family homes, a very volatile series, rose 17.9 percent in December.

Home Builders Confidence Remained Low in January

The Housing Market Index remained at a low level of 16 in January for the third consecutive month. This index is published by the National Association of Home Builders (NAHB). It tracks current single-family sales, sales expectations, and prospective buyer traffic. According to the NAHB, “Housing remains on the sidelines of a weak recovery as consumers and homebuilders wait for clear and consistent indications that jobs and economic output are reviving.”

Length of Time That a Completed New Home Sits on the Market Continues to Fall

Homebuilders have responded to the depressed housing market, which began to turn downward in early 2006, in various ways. As shown in Figure 1 above, new housing starts trended down from early 2006 to early 2009. In addition, builders have reduced their inventory of homes to record lows (Figure 2).

The length of time a completed new single-family home has remained for sale is another indicator of the strength of the housing market. This indicator began to trend upward in late 2006/early 2007 (Figure 3). However, as a result of the reduction in the inventory of new homes, this measure has been declining rapidly since its peak at 14.4 months in March 2010. If we define a “normal” market by the 1994–2006 average of 4.5 months, there is reason to be optimistic that the market for new homes will continue to approach a normal level.