PPI Economic Bulletin 03/19/2013: Housing Starts to Give Promising News for Economic Recovery

logoEvery month, the U.S. Census Bureau and Department of Housing and Urban Development publishes data on new residential construction, and this morning, statistics for February 2013 were released that show positive news for the economic recovery. Based on surveys of homebuilders throughout the U.S., the Census Bureau provides data on building permits, housing starts (the number of foundations built for new homes), and housing completions.

The most important data from the report for the economy are the figures for housing starts. Homebuilders broke ground on new houses at a (seasonally adjusted) per annum rate of 917,000 in February 2013. Compared to the month before, this number has increased by 0.8 percent, and the rate is up by 27.7 percent from February 2012. Bloomberg had surveyed 81 economists for their predictions on the number of housing starts, and the median estimate was 915,000. The higher than expected value of 917,000 for this month is positive news for the economy. In addition, for single-family homes, the number of housing starts was at 618,000 in February, which is the highest amount since June 2008.

The report also looks at building permits, which indicate the level of future construction. The number of building permits increased from January 2013 by 4.6 percent to a seasonally adjusted number of 946,000. Compared to a year ago in February 2012, privately-owned housing units authorized by building permits has jumped by a remarkable 33.8 percent.

Economists mostly study this report for its information on brand new residential construction and the housing starts statistics, but the U.S. Census Bureau also provides information on privately-owned housing completions. In February of this year, 711,000 houses were completed, which is 24.3 percent higher than the rate for February 2012.  The report also provides regional data divided by the Northeast, Midwest, South, and West. Compared with the results from the January 2013 report, the number of housing starts for Northeast and Midwest has increased, while housing starts declined in the South and the West, with the decrease of 5.7 percent in the South attributable to a decrease in starts of multifamily homes.

While data from new residential construction does not typically shock markets, the release does provide leading indicators for the state of the economy, particularly because of the impact the financial crisis had on the housing market. Construction usually increases at the beginning of the business cycle, signaling an expansion and recovery from the recession. The data from this report indicates that there has been a marked improvement in consumer confidence in the housing market, as the values of property become more stable and mortgage rates remain very low. Economist Anika Khan for Wells Fargo LLC, which is a subsidiary of the nation’s largest mortgage lender, commented on the results of this report: “Housing continues to be a bright spot for the economy, and this is a good report. Permits definitely showed a big jump. As long as that is outpacing starts, we’ll likely see another positive month next month.”

Housing Starts for February 2013 Total and By Region, Table 3

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Source: Census, Bloomberg

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