Housing Starts and Builder Confidence Show Slight Improvement

The various new home construction indicators tracked by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development were mixed in September, but all in all painted the picture of a market sector that is, at worst, in an orderly retreat.

Builders applied for permits for new residential construction at a reduced rate. Permits were authorized at a seasonally adjusted annual rate of 1,619,000, a 6.3 percent decline from the number issued in August and 17.7 percent below figures for September 2005. Single-family permits were issued at an annual pace of 1,207,000, 6 percent less than in August.

Housing starts, however, were up from revised August statistics by 5.9 percent although they were running 17.9 percent behind housing starts one year ago. There were a total of 1,772,000 residential construction starts, 1,426,000 of which were for single family houses.

Housing was completed at an annual rate of 2,084,000; an 11.1 percent increase above revised August figures and 7.2 percent higher than the September 2005 completion rate. Single-family completions were 7.1 percent higher than in August.

202,000 permits for housing have been issued where construction has not yet started. This is a decline of 6.3 percent since last month and 27.7 percent less than one year ago.

Housing starts were down most sharply in the Northeast and the South. Total starts and single-family starts were off 14.1 percent and 12.1 percent respectively since August in the Northeast and 14.0 percent and 8.5 percent in the South. The South, however, faired far better than the rest of the country when compared to September figures from last year. Starts were off 3.8 and 8.4 percent while the other three regions suffered year-over-year declines ranging from 28.4 to 33 percent.

Builders are also seem to be rallying from the blue funk that has enveloped the industry for months. The National Association of Home Builders (NAHB) released its NAHB/Wells Fargo Housing Market Index for October this week and it showed a slight increase in builder confidence after eight straight months of declines.

The index, which NAHB and Wells Fargo have been conducting for 21 years, measures builder sentiment about the single-family home market in three categories. Respondents are asked to state their perceptions of current single-family home sales and their projections for the next six-months as good, fair, or poor and to rate traffic of prospective buyers along a scale from very low to very high. Scores for each of the three components are used to calculate a seasonally adjusted index. Any number over 50 indicates that more builders view sales conditions favorably than unfavorably.

Prior to this month the overall index had plummeted to 30. It is now up one point in to 31. The individual component that measures current sales was unchanged from September at 32 while the index of sales for the next six months showed an improvement of four points to 41. Traffic was rated by builders at 23 - again a one-point improvement from last month.

Builders in the Northeast and Midwest were more upbeat than those in the other two regions, at least as compared to September ratings. The overall index gained five points in the Northeast and four in the Midwest. Decreased affordability and a "major snap-back" in investor activity resulted in a five point drop in the West.