Housing market kicks into high gear as starts and permits post huge gains in September
October 18, 2012
Housing, perhaps the biggest culprit of the financial crisis and ensuing recession, is increasingly becoming one of the few bright spots of the U.S. economy. The new starts and permits figures jointly released by the U.S. Census and HUD shed further light on the strength on the housing recovery. New housing starts jumped to an annualized rate of 872,000 in September, the highest level since July 2008 and up 15 percent from the previous month. Similarly, housing permits issued (typically an indicator of future building activity) rose 11.6 percent, well exceeding analyst expectations. Compared to a year-ago (last September 2011), starts and permits grew 45 percent and 35 percent, respectively.


The more encouraging takeaway from these latest figures is that despite slower expansion in U.S. labor markets, slower rate of exports as growth in emerging regions subsides, and the uncertainty that looms over the nationaEUR(TM)s fiscal situation, the economy is NOT crumbling. What initially drove us into recession has created legs that can help accelerate growth. While housing itself makes up a smaller slice of GDP, the building of structures creates much needed jobs in the construction sector. And it doesnaEUR(TM)t stop there, as new owners are likely to purchase big-ticket items, such as furniture, appliances and so on.

Some economists and pundits may argue that the FedaEUR(TM)s announcement of QE3 (open ended program of asset purchases) or, in this case, the anticipation of such an announcement may have sparked a one-time surge in housing activity. However, there is reason to believe that the underlying factors behind this surge are more sound. For starters, the rate of home building has been below that of household formation. With record-low mortgage rates (thanks to the Fed), greater affordability, and stable prices, homebuyer confidence has returned, and pent-up demand for housing is being absorbed. Many potential buyers who were once leery of entering the market are convinced that prices are not falling further. Even despite sluggish employment growth, we are starting to see an improvement in household formation as younger adults are moving out of rental units and their parentsaEUR(TM) homes. In fact, the number of households grew 2 percent in the U.S. in 2011, the largest gain over the past decade.

Existing home sales are rising at a moderate pace, and new home sales rose 28 percent in August compared to August of last year. While issues such as access to credit still present challenges in achieving a more healthy and sustainable housing market, todayaEUR(TM)s numbers are, at least, an indication that the recovery is under way.