Behind the Numbers: Housing Starts Up

Housing got some good news today: Construction of homes and apartments increased 3.5% from a month earlier, the Commerce Department said Thursday. That’s right. Increased. It gets better. Newly issued building permits, a gauge of future construction, rose 8.7% from a month earlier to an annual rate of 612,000, the highest level since December. Construction of single-family homes, which made up about two-thirds of all starts, rose by 3.7% from a month earlier. Construction of multifamily homes with at least five units climbed 2.9% on a monthly basis. The news helped rock shares of home builders. Hovnanian Enterprises Inc. recently traded up 3.8%, while industry giant DR Horton Inc. gained 2.4%. To be sure, this is hardly the end of the sector’s five-year slump. Just Wednesday, the National Association of Home Builders said its closely watched housing market index sank three points to 13 out of 100 in June. (Zero is really bad, while 100 is perfect.) Pretty depressing. But don’t take our word for it. Here’s what industry watchers had to say: Patrick Newport, economist, IHS Global Insight: “The bottom line: Single-family home construction remains stuck near the bottom, and the near-term outlook is for more of the same.” Jade J. Rahmani, analyst, Keefe, Bruyette & Woods: “New home construction and most housing data remain broadly subdued. Anecdotal evidence and mortgage application data suggest choppy May and June selling conditions. Mortgage credit remains tight.” Steve Blitz, economist, ITG Investment Research: “The housing construction industry overall continues to run at depressed rates with month-to-month volatility in the data that means nothing in terms of indentifying a trend.” Paul Dales, economist, Capital Economics. “The increase in housing starts in May would have been larger if it wasn’t for some floods and tornadoes preventing homebuilders from breaking new ground. As postponed projects begin and reconstruction gets underway, housing starts will rise further in the coming months. But the headwinds of high excess supply, low household formation and stiff competition from foreclosed properties mean that any rebound will be modest.”