Builders Hold Back on New Construction but Some See Hope

Housing starts and building permits continue to lag far behind the numbers recorded one year ago according to monthly data issued on Wednesday by the U.S. Census Bureau and The Department of Housing and Urban Development.

Housing permits were issued in January at a seasonally adjusted annual rate of 1,048,000, down 3 percent from the revised December rate of 1,080,000 and 33.1 percent lower than the pace in January 2007.

Permits for single family housing were down 4.1 percent from December's revised rate of 702,000 to 673,000 in January.

The pace of permitting varied widely by region. In the West the rate was 13.5 percent below December and 53.8 percent lower than one year earlier while the Midwest has positive news with an increase of 10.4 percent mostly due to permitting of multi-family units. The Northeast declined just under 6 percent and the South lost 1.5 percent.

Housing starts were up in January a negligible 0.8 percent with 1,351,000 units started compared to the revised December estimate of 1,327,000. One year ago there were 1,830,000 starts so the first month of 2007 was off 26.2 percent year over year.

Single family housing starts were down 5.2 percent from December, but multi-family housing with 5 or more units picked up some of the slack with an increase of 17.6 percent in the same period.

One bright spot was the Northeast. Single family housing starts were up 43.8 percent from the previous month although they were still at a rate 16.3 percent lower than one year earlier.

Builders, however, are seeing some signs that their prospects might soon improve. The latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released earlier in the week rose a single point to 20 in February. This is not much above the recent record low for the HMI of 18, but was largely based on builders' perceptions that traffic through their new homes was improving.

The HMI is based on the results of a survey conducted monthly since 1985 in which builders are asked to provide their perceptions of current single-family home sales and sales expectations for the next six months as either "good," "fair" or "poor." The survey also asks builders to rate traffic of prospective buyers as either "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor. Scores are also provided for each of the three component indexes with 50 as the benchmark.

In February, the component gauging current sales conditions for single-family homes rose one point to 20, while the index gauging sales expectations for the next six months declined one point to 27. However, the index gauging traffic of prospective buyers rose five points to 19, its highest level since July of 2007.

NAHB Chief Economist David Seiders and Association President Sandy Dunn both commented that the increased traffic was an indication that more consumers are starting to research a new home purchase and check out the options available to them but both also urged additional legislation to jump-start the housing market and keep the economy moving forward.