Building permits continued their strong performance in March in the latest construction data from the U.S. Census Bureau.
Released in conjunction with the Department of Housing and Urban Development, the report found that building permits in March were at a seasonally adjusted annual rate of 747,000, a 4.5 percent increase from February and 30.1 percent increase from March 2011.
Housing completion totals were similarly encouraging. From February to March, completions were up by 4.2 percent to an adjusted annual rate of 600,000, and year-over-year, they have increased by 0.5 percent.
Though privately-owned housing starts were down from February to March by 5.8 percent, they were still 10.3 percent above March 2011’s totals; and, with permits anticipating future construction activity, starts can be expected to increase in the coming months.
The softer housing starts data could, potentially, explain the recent drop in builder confidence, an NAHB measure that had been increasing progressively the last seven months. For April, the NAHB’s index declined to 25, which still puts it at its highest level since 2007.
In a press release accompanying the index, NAHB Chief Economist David Crowe said the new data is but a “pause” in the housing sector’s 2012 recovery.
“What we’re seeing is essentially a pause in what had been a fairly rapid build-up in builder confidence that started last September,” Crowe said. “This is partly because interest expressed by buyers in the past few months has yet to translate into expected sales activity, but is also reflective of the ongoing challenges that are slowing the housing recovery – particularly tight credit conditions for builders and buyers, competition from foreclosures and problems with obtaining accurate appraisals.”
Analysts quoted by the Wall Street Journal in a recent article expressed similar sentiments, that though confidence is down, it still represents an improvement in builder moral.
Ethan Harris and Michelle Meyer, economists at Bank of America Merrill Lynch, said in a January research note quoted by the Journal that though overall sales are flat, consolidation is contributing to the higher confidence.
“In our view, the growing gap — with builders seeing an improvement in sales, but overall sales flat — is consistent with consolidation in the industry,” the economists wrote. “Single family home building is picking up, as long as you are still in business.”
In a paper published in February and also cited by the Journal, Harris further elaborated on the theme of consolidation.
“Before we break out the champagne, however, the improvement in home builder expectations probably reflects the rationalization of the industry,” he wrote. “Many builders have dropped out of the business or have merged, leaving the market to bigger builders that have the financial wherewithal to withstand the recession. This explains why the home builder views of sales have improved, but actual aggregate sales have not.”