The Mortgage Minute Blog - Peter Grimm

After a strong March showing and a surprise upward-revision for February, Housing Starts are once again, trending better.

It’s yet another signal that the housing market in Connecticut and nationwide is stabilizing.

A Housing Start is a new home on which construction has started, over the last 6 months; home builders are averaging one half-million starts per month.

This marks the highest 6-month average since 2008 and a reading one-fifth percent better from 12 months ago.  Revisions to prior data have all been higher.

Even more interesting, is that the number of newly-issued building permits is exploding. Permits were up more than 5 percent last month and have climbed back to the levels of late-2008.

Housing permits are an important data point in housing because permits are precursors to actual housing starts.  According to the Census Bureau, 82% of homes start construction, starts within 60 days of permit-issuance.

Therefore, because March’s housing permits increased, we should expect Housing Starts to continue to rise into the early months of summer.

This too, reflects well on housing because the federal home buyer tax credit won’t be in existence this summer. The simple fact the homes are being built now shows that housing is likely to expand even after the tax credit expires.

Non-military members must be under contract by April 30, 2010 and closed by June 30, 2010 in order to claim up to $8,000 in federal tax credits.

Sometimes, headlines for housing can be misleading and this week gave us a terrific example.

On Wednesday, the Commerce Department released its Housing Starts data for January 2010. The data showed starts at a 6-month high.

A “Housing Start” is a privately-owned home on which construction has started.

Headlines on the Housing Starts story included:

• U.S. Housing Starts Hit 6-Month High (Reuters)
• U.S. Economy Receives Home Building Boost (Shepparton)
• Housing Starts Post Sharp Rebound (ABC)

Based to the headlines, the housing market looks poised for rapid growth through the Spring Market.

The real story, though, is that although Housing Starts increased by close to 3 percent last month, the growth is mostly attributed to buildings with 5 or more units.  This includes apartments and condominiums, a sector of the housing market that’s notoriously volatile.

If we isolate Housing Starts for single family homes only, we see that starts grew by just 7,000 units last month and have failed to break a range since June 2009.  January’s tally is slightly below the 8-month average.

Perhaps more interesting than the Housing Starts, is the Commerce Department’s accompanying data for Housing Permits. After a 5-month plateau that ended in November, Housing Permits posted multi-year highs for the second straight month.

According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance.

One reason permits are up is that home builders want to capitalize on the federal homebuyer tax credit’s dwindling time frame.  Sales are expected to spike in March and April and more homes will come online to deal with that demand.  Home buyers in Connecticut should shop carefully, but with an eye on the clock.

As the tax credit’s April 30, 2010 deadline approaches, competition for homes may be fierce.

A “Housing Start” is a privately-owned property on which construction of a home has started. It’s an important gauge of housing health because it tracks new housing inventory nationwide.

In December 2009, starts fell by nearly 7 percent.

The news is mildly disappointing but not too bad. One of the likely causes for the Housing Starts drop is December’s rough weather conditions. It’s tough to break ground when Mother Nature won’t cooperate and last month was especially stormy in many parts of the country.

Some good news is that for the second straight month, Housing Permits exploded. 

A housing permit is a certificate from local governments that authorizes construction. After posting a 7 percent gain in November, permits rose by another 8 percent in December.

It’s a signal that housing may be in recovery despite the falling number of actual starts. More permits mean that builders plan to bring more homes on the market for what’s expected to be a very busy spring home shopping season.

According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance.  Therefore, Housing Starts should start rising soon.

For home buyers, the news couldn’t be better. 

With more homes coming on the market, competition among home sellers should increase, and that will suppress any rise in home prices in most markets.