The Wall Street Journal

20 March 2012

U.S. home building fell in February, but permits for new construction reached their highest levels in nearly 3½ years, reflecting housing’s uneven and protracted recovery.

Home construction decreased 1.1% from January to a seasonally adjusted annual rate of 698,000, the Commerce Department said Tuesday.

Construction of single-family homes, which makes up more than 70% of housing starts, fell by 9.9%—the largest drop in a year. Meanwhile, multifamily homes with at least two units, a volatile part of the market, posted a 21.1% gain.

Still, January’s figures were raised to 706,000 starts overall, a 3.7% improvement from December and the highest level since October 2008.

In a positive sign for future construction, the February data showed new building permits rose by 5.1% from a month earlier to an annual rate of 717,000—also the highest level since October 2008.

The housing sector has been healing slowly after prices collapsed more than five years ago.

A National Association of Home Builders report on Monday showed that U.S. home builders’ confidence in the market held steady in March at the highest level since 2007.

“The level of activity still remains far short of the pace implied by the NAHB index so we look for further gains over the next few months in both sales and starts,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics. “Housing will add to growth all year, and beyond.”

But Joshua Shapiro, chief U.S. economist at MFR Inc., said that so far, the home builders association’s level of confidence hasn’t been matched by actual construction. “Our view remains that single-family housing starts are in a long-term bottoming process but that an enormous overhang of existing single-family home supply will prevent sharp gains in single-family starts in the near to medium term,” Mr. Shapiro said.

NAHB said Monday that its members continue to face obstacles, including tight credit for both builders and buyers and a large inventory of inexpensive, foreclosed homes in many markets.

The overall economy seems to have perked up recently, adding more than 200,000 jobs in each of the past three months. As more Americans find jobs, that could bolster the housing market and spur construction—a sector that dwindled as a jobs engine during the financial crisis.

But the nation’s unemployment rate remains elevated at 8.3% and potential homebuyers have myriad choices among existing homes, which tend to be more affordable than newly built ones.

Builders have started construction on about 1.5 million new homes a year, on average, since records started being kept in 1959. Last year, the industry started construction on only 609,000 homes, making 2011 among the weakest showings on record.

The Commerce Department data showed that housing starts were mixed across four U.S. regions. The Northeast posted a 12.3% decline, while starts in the West dropped 5.9% last month. Starts rose 3% in the Midwest and 1.5% in the South.

Actual housing starts, calculated without seasonal adjustments, grew to 48,100 in February from 46,500 in January. Lumber and commodities markets watch those numbers closely to gauge demand.