Housing starts declined 5.8% in March to 654,000 units at an annual rate
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Implications:  Despite the headline drop in housing starts, the recovery in home building is still underway.  Housing starts came in below consensus expectations in March, but you should take that headline with a huge grain of salt.  First, almost all the drop was due to multi-family starts, which are very volatile from month to month; single-family starts were basically unchanged in March.  Second, due to relatively warm weather, building conditions were unusually good between December and February.  This pulled some starts from March/April into the winter.  But starts were still up 10.3% in March versus a year ago.  Third, the total number of homes under construction (started, but not yet finished) increased for the seventh straight month, the first time this has happened since 2004-05.  Fourth, and the most impressively, permits to build homes easily beat consensus expectations, hitting the highest level since September 2008, and are up 30.1% from a year ago, signaling continued gains in home building in the coming year.  It looks like the first quarter of 2012 will be the fourth straight quarter where home building boosts real GDP.  Multi-family activity – both starts and permits – has been leading the way and we expect that to continue, particularly now that a legal settlement means more foreclosures can move forward.  Some people occupying homes they have not been paying for will now have to go elsewhere and rent.  Based on population growth and "scrappage," housing starts should eventually rise to about 1.5 million units per year (probably by 2016), which means the recovery in home building is still very young.  For more on the housing market, please see our research report (link).  In other recent housing news, the National Association of Home Builders housing market index fell to 25 in April from 28 in March, but is still up from 16 a year ago and as low as 14 as recently as September.

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Posted on Tuesday, April 17, 2012 @ 10:31 AM

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