The Outlook for Housing Starts and Authorized Building Permits in 2015

The Outlook for Housing Starts and Authorized Building Permits in 2015

 

`Housing Starts’ is a report popularly known by this term on the Wall Street. It is, in actuality, a new residential construction report. It is issued on a monthly basis by the United States Bureau of Census in conjunction with the United States Department of housing and Urban Development. The information is taken from the source of surveys of all the home builders across the nation. The report deals with three metrics – housing starts, housing completions and building permits.

What is a housing start?

A housing start can be explained as the initiation of the home foundation itself. The building permits are calculated as of the time that they are issued. The housing starts as well as the building permits are indicated as a percentage change from the previous month and they are assessed on a year-over-year period of duration. Both these sets of data are geographically bifurcated into four regions – the Northeast, Midwest, West and the South. This kind of division help in reflecting the major differences that prevail in the real estate markets in different regions of the country. The data is segmented between multiple-unit housing and single-family units on the aggregates that are measured across the nation. All this data is presented with seasonal adjustment and also without it.

Both the building permits and the housing starts are regarded as prominent indicators. The figures involving building permits are considered to compute the United States Leading Index of the Conference Board.  The growth in construction picks up generally at the beginning of a business cycle. This Leading Indicator Index identifies patterns of business cycles in an economy and is used during the policy meetings by the Federal Open Market Committee.

Recovery in the residential real estate market in USA

At the present, the residential real estate market recovery can be explained as going through a stage of plodding. The industry sector has taken few steps back last month when compared with its rise in the previous three months.

Housing starts have declined by close to two per cent and this is the first time that the market has seen a drop since August 2014. It now stands at 1.03 million annualized rates from a revision of 1.05 million units’ pace in the month of October 2014. It was stronger than estimated previously as per the figures shown by the Commerce Department. Though all the regions showed a gain, it was the South region that led to the plunge of the housing starts and the subsequent decrease.

Building permits have also fallen in numbers last month. This indicates that there will not be a surge in the construction business in the immediate future as it was earlier projected. The positive outcome from this is the pushing down of interest rates due to the turmoil in the financial markets recently. When combined with a job market which is gradually strengthening, it indicates that buying of homes will well be within reach for more citizens in 2015.

Statistics from the U.S. Bureau of Census

  • New one-family houses sold in USA

448,000 units in November 2013

438,000 units in November 2014

The highest number reached was 1,244,000 in September 2005.

Notes: Monthly, Seasonally Adjusted Annual Rate

  • New privately owned housing units under construction

688,000 in November 2013

814,000 in November 2014

The highest number reached was 1,628,000 in February 1973

Notes: Monthly, Seasonally Adjusted

  • Housing Starts: new privately owned housing units started

1,105,000 in November 2013

1,028,000 in November 2014

The highest number reached was 2,421,000 in September 1972

 

Notes: Monthly, Seasonally Adjusted Annual Rate,

  • New private housing units authorized by building permits

1,037,000 in November 2013

1,052,000 in November 2014

The highest number reached was 2,419,000 in February 1973

Notes:

  • Monthly, Seasonally Adjusted Annual Rate
  • Starting with the 2005-02-16 release, the series reflects an increase in the universe of permit-issuing places from 19,000 to 20,000 places.

 

An Analysis

The analysis is that housing starts have shrunk by 1.6% in November 2014 after a revised 1.7% rise in the month of October and this was dragged down by a 5.4% drop in the single-family units. Building permits also fell rapidly at 5.2%. Privately owned housing starts were at a seasonally adjusted rate of 1,028,000; it is a drop of 7.0% when compared with the November 2013 figures of 1,105,000. Single-family housing starts were at 677,000; this is 5.4% below the October figures which were revised at 716,000. New private housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1,052,000; this is 3.7% below the revised rate of 1,092,000 in October.

Outlook for 2015

There is a brighter outlook for strong residential investments this year as per senior economists at Moody’s Analytics Inc. in West Chester, Pennsylvania. According to them, a resurgent and an improving job market scenario would do wonders for the housing market in the United States of America. They feel that the housing starts after their decline post two significant increases in September and October of last year will pause and move towards a gradual recovery. They have pointed out that despite the fall in November 2014; the ground breaking is up by 7.7% when it is compared with the performance in the first eleven months of 2013. Housing starts have averaged a 990,000 units’ pace in 2014 compared with an average 930,000 units’ rate in 2013.

The economy of the country is on a growth path and is accelerating and this trend is likely to continue for quite some time. The hard data that is acquired from the industrial production reports also has indicated a bullish picture in the manufacturing sector. The stocks have gone up sharply as a result of volatile trading and the prices for the United States Treasury debt have also risen. The good news about the mortgage rates is that they have been continually declining after reaching a peak in the month of September 2013.

When the job growth accelerates, wages are likely to pick up this year. It will bring in first-time purchasers in real estate, particularly the younger lot of people, and the housing market. It will serve as a tail wind for the economy of the country. The housing market will prove to be a mild boost for growth in 2015.

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