Housing starts and permits up, but no housing recovery yet

Housing starts and permits

According to the U.S. Census Bureau, housing starts rose in August, marking a 29.1 percent increase year over year, with permits rising 24.5 percent compared to August 2011. This news comes on the heels of the National Association of Realtors (NAR) reporting that existing home sales rose 7.8 percent in August, both of which are being considered signs of improvement in housing.

This week, the National Association of Home Builders (NAHB) indicated a fifth consecutive month of rising builder confidence, but we noted that a reading of 40 points in confidence means 60 percent of builders remain unconvinced that they should have a positive outlook on sales, traffic, and the new home sector.

Improvement versus recovery

While these are all signs of improvement, pundits calling this a housing recovery is like calling a patient in a coma who wiggled a finger recovered. Housing has a long road ahead, and economic indicators like this give us hope, but the road to recovery is a long, and potentially arduous one.

Recent improvements are a welcome sign for the new home construction sector, as housing starts remain at an annual rate of 750,000, nowhere near the pace of 2.0 million hit when the sector hit its stride in May of 2005.

The NAHB continues to note that lending conditions for builders remain constrained and the NAR echoes the sentiment, adding that lending standards are currently unreasonably tight for consumers, so lending continues to have a massive impact on new home construction from both ends – builders and buyers.

Home prices and home sales are on the rise, and tight inventory levels are good news for sellers and builders, but a major challenge for buyers in many markets. Altogether, housing is most certainly showing signs of life, but by no means has it hit its “normal” or recovered, but recent economic indicators show that we are on the road to recovery.