Alex Carrick, Canadian Chief Economist
U.S. home starts in January climbed to 699,000 units seasonally adjusted and annualized, according to a joint press release from the Census Bureau and the Department of Housing and Urban Development.
The nearly 700,000 figure was a relatively modest 1.5% gain month to month, but a more impressive 9.9% increase year over year.
Residential building permits displayed a similar pattern of improvement, +0.7% month to month and a big 19.0% jump year over year.
January is too early in the year to draw too many conclusions about the regional and type of structure (i.e., singles versus multiples) markets. Just the same, most experts believe that the multiple-unit sector is where the recovery will be apparent first.
The primary cause will be a strong rental market tying into where many of the new jobs are going – often to young people leaving university with high-tech skills and wanting to set up their first homes.
Looking deeper into the total package of results published in January reveals another reason to think the market may be improving faster than expected.
There have been substantial revisions to previous estimates.
The largest revisions usually occur at a time when a sharp swing is underway, either up or down.
The reason is because there is almost always a “more of the same” bias built into the calculation of many statistical series. This is especially true when missing portions of a series are filled in with estimates.
It can take a month or two for a dramatic shift to be spotted and captured.
In the latest month, the starts figure reported for the Midwest in December of 144,000 units was bumped up by 28,000 to a revised figure of 172,000 units, seasonally adjusted and annualized.
That’s a much larger than normal revision of +19%.
Total U.S.-wide single-family starts in December were increased by a whopping 43,000 units to move to 513,000 from 470,000.
The bottom line is that in January, the December total was raised by 32,000 units to climb from 657,000 to 689,000.
This is after November was increased by 17,000 units to a new level of 702,000 from 685,000.
The 702,000-unit figure for November is significant for another reason. It’s now the highest level of starts since October 2008, which was just after Lehman Brothers fell into bankruptcy and the global credit crunch began with a vengeance.
Furthermore, other indications of an improving U.S. homebuilding sector have been emerging.
For example, the National Association of Home Builders (NAHB), in association with Wells Fargo, has been calculating and publishing a sentiment index for the past 20 years.
This Housing Market Index (HMI), which looks at home-builder confidence in the single-family market, increased in January to its highest level in more than four years.
The index value has doubled since last September. It now stands at 29 in a range between 0 and 100. The NAHB, while encouraged by the latest measurement, has also issued several cautionary notes.
For one thing, the level is still very low. A figure of 50 or higher is needed before homebuilders can be said to view conditions as good rather than poor.
Valuations of new homes are often still falling below construction costs. Foreclosed properties are continuing to offer stiff sales competition to newly completed homes. And many prospective buyers are being denied mortgages due to too strict approvals processes.
On the subject of foreclosures, one big uncertainty has been removed for lending firms.
The 50-state commission assigned the task of deciding what action should be taken against several of the largest mortgage lenders, for too-quick and lax administrative procedures when initiating foreclosure action, has come down with a ruling.
The punitive dollar amounts have been determined and they will be a combination of penalties paid to the states and recompense in various forms made to owners who were unfairly driven from their homes. The ruling does not eliminate the possibility of individual civil lawsuits.
The irony is that the pace of foreclosures may actually pick up for a while, since banks put some of their loan reclamation practices on hold pending a determination of their legal damages.
However, definitely acting to lift the outlook for the home-building sector are the latest employment results. The number of jobs in the U.S. has increased by one million over the past six months. There are strong indications this trend will continue.
Initial jobless claims for the latest week ending February 11 were the lowest since before the recession. They were -13,000 versus the week before and fell to a level of only 348,000. In the recession, the figure consistently sat above 500,000 and rose as high as 656,000.
The latest week is the first time new unemployment insurance claims have been below 350,000 in four years.
A continuation of this pace will mean a third consecutive monthly employment gain of at least 200,000 – i.e., December was +203,000 and January, +243,000 – when February’s labor market report is issued in early March.
In Canada, the recent economic news has been somewhat upbeat as well, partly due to the spillover effects from the improved circumstances in the U.S.
For example, manufacturing sales in December were +0.6% month to month and +9.1% year over year, according to Statistics Canada. Those figures are based on seasonally adjusted current (i.e., no account taken for inflation) dollars.
Total manufacturing sales are now almost level with where they were in October 2008, the first month of the recession in Canada. They have increased in five of the past six months, with the motor vehicle industry in the vanguard.
Sales by motor vehicle manufacturers, in large part to satisfy demand from south of the border, are at their highest monthly level since November 2007.
Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.