According to the U.S. Census Bureau, housing starts in July fell 16.0 percent, but were up 10.1 percent for the year. Falling to 1.206 million, housing starts are at historically low levels, and after a jump last month, permits saw a 6.3 percent dip during this reporting period (although permits are up 7.5 percent for the year).
Although multi-family saw the biggest decline, pulling the overall number down, it is not time to panic, as it is typical for this sector to decline after frantically making up for lost winter productivity. All regions but the Midwest are doing well when looking at year to date numbers.
So why then does Trulia’s chief economist, Dr. Selma Hepp proclaim that “Despite the volatility, construction activity is in the best year since the recovery began.” Because of data.
How can this be good news?
Hepp explains by offering in her own words below the combination of single-family starts, annual growth in multi-family construction, and builder confidence:
- Single-family construction starts are moving up ever so slowly, and reached 782,000 annualized units in July 2015. Finally a little bit stronger than multi-family starts, the single-family starts are still below long-run average in most major metros across the county. In fact, Trulia’s latest study reveals that the single-family component is still well below historical norms even in metros seeing improvement in annualized permit activity. Only 13 out of the 100 largest U.S. metros saw increases in single-family construction over their historical norms, most notably in Austin, Houston, Charleston and Nashville.
- The annual growth in multi-family home construction has slowed markedly but in line with expectations, particularly among 5+ units construction which recently reached highest levels since mid-1980s. Trulia’s analysis of permit activity for multi-family construction shows that 53 out of the 100 largest U.S. metros are now building more than their historical average. In some of the top 10 markets, multi-family construction was higher than the historical norm by several fold. For example, New York’s activity is more than four times higher, while both Boston and Newark are almost three times higher. In many of these markets, multi-family construction is reaching a cyclical peak and will soon see some slowdown.
- Many housing markets are still building well below their historical norm. Trulia’s analysis of permit activity shows that 7 in 10 homebuilding markets t are building below their long-run norm. Most simply, areas with slower home price appreciation and fewer new jobs are still the construction laggers, but also the markets with some residual distressed inventory since the housing bust.
- Builder confidence for newly built, single-family homes yesterday showed the index continuing to increase to the highest level since November 2005. High confidence among builders is an encouraging indicator of future construction activity.
Hepp concludes, “All in all, the housing recovery has reached a new milestone. Builders have become much more bullish on the housing market, with homebuilder confidence haven risen to a near-decade high. New construction is now being driven by steady home price appreciation, but more importantly by stronger economic fundamentals, job growth, and demographic trends which are key fundamentals necessary for a sustainable healthy recovery.”