Housing Starts Continue Recovery

Housing starts increased 2.1% in August to a 750,000 seasonally-adjusted annualized (SAAR) level.  The increase was concentrated entirely in the single-family sector increasing 5.5% to an SAAR of 535,000, the highest since early 2010 just before the home buyer tax credit expired.  The improvement was broad based with increases in all four Census regions.  Multifamily starts dropped back to 215,000 SAAR, but the three-month moving average of this more volatile series has remained in the 214,000 to 221,000 levels for more than a calendar quarter.

Housing permits, an indicator of future building activity, dropped back 1% but again due to a more volatile multifamily sector decline from an unusually large level in July.  Single-family permits were virtually even with July at 512,000 SAAR with two regions up and two down.

The sustained increase in single-family housing starts began about a year ago when monthly reports were in the low 400,000 range and have since climbed by more than 100,000.  The NAHB/Wells Fargo Housing Market Index has shown a similar steady climb from 14 in September 2011 to 40 in September 2012.  The steady increase in housing activity returns housing to the more traditional role of leading the economy out of a recession as the rest of the economy hesitates.  As housing continues to improve, the 300 jobs per 100 starts will help improve the overall job market. 

The housing recovery will be modest because many obstacles remain including limited access to credit for builders and buyers, low appraisals that mean some purchase contracts are cancelled, competition with low-priced foreclosures and distressed sales and, more recently, higher building materials costs that squeeze the already limited builder profits and a limited supply of building lots.  NAHB expects to see a continuation of this modest recovery pace and end the year with housing starts at 800,000 SAAR.