Building Permits Rise in December 2010 as Builders Prepare for Anticipated Improvement in Buyer Demand


January 22, 2011

Nationwide housing starts declined 4.3% to a seasonally adjusted annual rate of 529,000 units in the final month of 2010, according to newly released figures by the U.S. Commerce Department. While this was the slowest pace of starts activity since October 2009, the year-end data indicate that production of new homes improved 6.1% in 2010 from the previous year. On another positive note, permit issuance for construction of new homes and apartments rose 16.7% in December to a rate of 635,000 units, the strongest pace since March of 2010.

“The latest government report indicates that builders are preparing for an anticipated improvement in buyer demand in the spring buying season by pulling more permits in hopes of soon replenishing the very tight inventory of new homes for sale,” said Bob Nielsen, chairman of the National Association of Home Builders (NAHB) and a home builder from Reno, Nevada. “That said, it remains to be seen if the availability of financing for new construction and existing viable projects will improve in order to make building feasible and facilitate a housing and economic recovery.”

“Today’s report is consistent with what home builders have been telling us in our recent surveys,” noted NAHB Chief Economist David Crowe. “While builders remain extremely cautious about new construction at this time, they are looking forward to putting their employees back to work as economic conditions improve over the New Year—assuming they can obtain the necessary financing for new-home production. To date, however, any improvement in the market for acquisition, development and construction lending has been minimal at best.”

Crowe also noted that December’s permit numbers may have received a partial boost due to building code changes that were expected to go into effect in several states this January.

The 4.3% decline in December housing starts was due entirely to a 9.0% shortfall on the single-family side, where housing production fell to a seasonally adjusted annual rate of 417,000 units. Meanwhile, multifamily housing starts, which tend to display greater volatility on a month-to-month basis, rose 17.9% to a 112,000-unit rate.

Regionally, the West was the bright spot in the housing starts report for December, posting a 45.8% rebound from an exceptionally slow period in the previous two months. Meanwhile, the Northeast, Midwest and South posted declines, of 24.7%, 38.4% and 2.2%, respectively.

Building permits, which can be an indicator of future building activity, rose 16.7% in December on gains in both the single- and multifamily sectors. Single-family permits rose 5.5% to a 440,000-unit rate, their best pace since April of 2010, while multifamily permits rose 53.5% to 195,000 units, their best pace since January of 2009.

Permits rose by substantial margins in three out of four regions in December, with gains of 80.6%, 3.3%, and 43.9% recorded in the Northeast, Midwest and West, respectively. The South was the only region to post a decline in building permits, of 7.6%.