Housing Starts Tick Lower; Building Permits Tick Higher

Single-Family Housing Starts fell to a seasonally-adjusted, annualized 425,000 units in July, according to the Census Bureau.

A "Housing Start" is defined as a home on which construction has started and ground has broken.

Furthermore, Single-Family Housing Starts were revised lower for both May and June of this year, by 6,000 units and 2,000 units, respectively.

The data may be worthless, however.

Like in most months, the government's official report states that the Housing Starts numbers have a margin of error exceeding their actual measurement. Mathematically, this renders the data statistically irrelevant.

• July Published Results : +4.9%
• July Margin of Error : ±8.9%

In other words, July Housing Starts made have increased by as much as 13.8%, or they may have dropped up to 4.0%. We won't know for certain until several months from now, when the Census Bureau gathers more data.

Regardless, the trend in Housing Starts has been flat since last summer. July's reading is in-line with the 12-month average and, not surprisingly, New Home Sales have been mostly flat over the same time span.

Also included in the Housing Starts report is the Building Permits tally. As compared to June, permits were higher by a half-percent nationwide, with varying results by region.

• Northeast : +2.9 percent from June
• Midwest : +0.0 percent from June
• South : -1.4 percent from June
• West : +4.9 percent from June

When permits are issued, 86 percent of them start construction within 60 days. This means that new home sales and housing stock should follow the Building Permits trend, but on a 2-month delay.

Expect improvement into the fall season.

Housing Starts Surge 9 Percent; Signal A Strong Fall Season

Builders are busy once again.

According to the Census Bureau, Single-Family Housing Starts rose to 453,000 on a seasonally-adjusted, annualized basis in June -- a 9 percent spike from the month prior and the highest reading in 3 seasons.

A "Housing Start" is defined as a home breaking ground on new construction.

June's reading is largest one-month jump since June 2009. The reading surprised Wall Street despite that the Homebuilder Confidence survey may have foreshadowed the results.

Monday, the National Association of Homebuilders reported that builders are more confident about the future of the new home sales market, and forecast a large increase in sales over the next 6 months.

For buyers of new construction, the news is mixed. Rising confidence may mean that builders are less willing to negotiate on upgrades and/or price, but rising construction levels add inventory to an already fragile market.

Adding to the nation's home supply without a corresponding increase in buyer demand shifts negotiation leverage away from builders. 

The Census Bureau also reported on Building Permits.

In June, permits for single-family homes rose by 1,000 units nationwide on a seasonally-adjusted, annualized basis. This, too, bodes well for housing because 89 percent of homes with permits start construction within 60 days.

Momentum should carry forward into fall.

If you're buying new construction in California , ask your real estate agent about local home supply, and how the market is trending. With mortgage rates low and the fall buying season approaching, you may find some of your best deals in the next few weeks.

Housing Starts Climb Unexpectedly In May

The housing market received a jolt of good news Thursday. The Commerce Department reports that Single-Family Housing Starts improved in May.

As compared to April, last month's Single-Family Housing Starts rose 4 percent to a seasonally-adjusted, annualized rate of 419,000 units, a figure slightly better than the 6-month average and the highest tally since January.

A "housing start" is defined as a home on which new construction has started.

In addition, Building Permits saw a boost in May, too, climbing nearly 9 percent overall. Building Permits are a gauge of future construction activity with 89 percent of permits leading to new construction within 60 days.

For several reasons, the May data surprised Wall Street analysts. 

First, more homes being built suggests a healthier housing market, yet, earlier this week, the June homebuilder confidence report posted its lowest reading since September 2010.

Second, new home sales are only slightly higher than their all-time lowest annualized readings. Sales volume remains low nationwide.

And, lastly, home prices have yet to recover in full. By adding additional inventory, builders may suppress price growth through the remaining portions of 2011.

For home buyers in California , though, the Housing Starts data may be a signal that the market is turning. The data can be used to your advantage.

Home prices are a function of supply and demand and -- based on the Housing Starts data plus the number of newly-issued Building Permits -- home supply is likely to rise. Demand, on the other hand, despite low mortgage rates, may not. At least not in the short run.

As a buyer, you can use this information to your advantage. If you're looking to buy new construction, ask your real estate agent about the current new homes supply. There are bargains to be found and May's Housing Starts data should support low prices for at least the next few weeks.

New Home Sales Increase For The Second Straight Month

Sales of newly-built homes surprised Wall Street, jumping 7 percent to an seasonally-adjusted, annualized 323,000 units last month.

In addition, the supply of new homes dropped to 6.5 months — a 2-month decrease from October 2010 and the best reading in a year.

The report runs counter to recent reports from the National Association of Homebuilders and the National Association of REALTORS® which suggest a looming housing slowdown. April's New Home Sales report runs counter to that theory; it shows ongoing, steady, staggered improvement in terms of sales volume and sales inventory.

Broken-down by sales prices, the New Home Sales report also showed that homes are selling across all price tiers. The "luxury market" improved most:

• Up to $199,999 : +1,000 homes from March
• $200,000 to $399,999 : +2,000 homes from March
• $400,000 and over : +3,000 homes from March

These figures suggest that that move-up buyers -- not first-timers -- are driving the new home market. Homes under $200,000 now account for just 40% new home sales, down from 46% a year ago.

However, as with most months, it's important that we recognize the New Home Sales data's margin of error. Although New Home Sales showed a 7% improvement in April, the reported margin of error was ±17%. This means that the actual reading could have been as high as 24 percent, or as low as -10 percent. 

It's a huge range, and because it encompasses both positive and negative values, the Census Bureau assigned its April reading "zero confidence". It's right there in the footnotes.

For home buyers , rising sales and falling supply may mean higher home prices. And, combined with the issuance of fewer building permits, supplies may be constrained into the summer months. This, too, would pressure home prices higher.

Building Permits Fade Faster Than Expected

Single-family housing starts dropped by 21,000 units in April on a seasonally-adjusted annual basis.

The Housing Starts report measures the number of homes on which new construction "broke ground". It's tracked by the U.S. Department of Commerce which releases new data monthly.

Single-family housing starts fell 5 percent as compared to March 2011, and 30 percent as compared to April one year ago. 

The figures were worse than what Wall Street expected. For just the second time in 2 years, monthly single-family housing starts dropped below 400,000 units. In addition, single-family Building Permits fell in April as well, shedding 2 percent from March.

A building permit is a local government's approval to start home construction and when permits are down, new construction follows. This is because 93 percent of homes begin construction within 60 days of permit-issuance.

Fewer permits, as a consequence, means fewer new homes. Therefore, if you're looking at new construction , April's numbers may spark a sense of urgency.

Home prices are a function of home supply and demand and, based on the Housing Starts data, supplies appear headed for a fall. Meanwhile, on the other side of the equation, demand should be rising -- foot traffic is higher, mortgage rates are lower, and job growth is picking up. 

This should lead new home prices higher in time. For now, though, home affordability remains high.

It's a good time to look at new home construction.

Building Permits Rise In All 4 Regions

According to the Census Bureau, seasonally-adjusted, single-family Housing Starts rebounded in March, increasing 8 percent over February's 2-year low.

We can't put too much faith in the data, however, because for the second straight month, the government reports that the data's margin of error -- 15 percent -- exceeds its actual measurement.

As written in the footnotes, there's no "statistical evidence to conclude that the actual change [in Housing Starts] is different from zero."

In other words, single-family Housing Starts may have dropped up to 7 percent last month, or may have increased by as much as 22 percent. We won't know for certain until several months from now. As the Census Bureau gathers more data, it will revise its initial monthly findings.

Such adjustments are common. February's starts were revised higher by 4.5%, for example.

Also included in the Census Bureau's report is the March 2011 Building Permits tally. As compared to February, permits were higher by 6 percent nationwide. This is a noteworthy development because permits-issued is an excellent forward-predictor for housing.

When permits are issued, 86 percent of them will start construction within 60 days. This means that new home sales and housing stock should follow the Building Permits report trend, but on a 2-month delay.

Permits were strong in all 4 regions last month:

• Northeast : +2.6 percent from February
• Midwest : +10.0 percent from February
• South : +5.3 percent from February
• West : +5.3 percent from February

With Building Permits rising, we can infer that the housing market is improving.

Therefore, if you're currently looking for new construction, consider that the market may be less favorable for buyers 4-6 months from now than it is today. Especially because homebuilders are already projecting higher sales volume.

The better time to buy new construction -- relative -- may be now.

Good News For Sellers -- Housing Starts Plummet In February

Single-family housing starts plunged unexpectedly last month. Nationwide, starts fell 12 percent from the month prior; and 29 percent from February of last year.

February's figures represents the worst 1-month drop in housing starts since May 2010 -- the month that followed the expiration of last year's federal home buyer tax credit -- and puts single-family housing starts at a 24-month low.

In addition, single-family Building Permits plunged last month, too, shedding 9 percent from January. A building permit is a local government's certification and approval to begin home construction.

Housing permits are an excellent forward-indicator for the housing market. This is because 93 percent of homes start construction within 60 days of permit-issuance. Fewer permits, therefore, directly reduces the number of new homes coming to market in the coming months.

For home buyers looking at new construction or existing homes, this news should create a sense of urgency.

Home prices are based on supply and demand and overall home supply looks headed for a fall. Plus, with mortgage rates retreating and homebuilders projecting higher sales this summer, buyers may face rising home prices before long.

Sellers look poised to regain negotiation leverage.

For now, though, home affordability remains high with properties inexpensive and mortgage rates still low, historically. If you plan to buy a home in 2011, the February 2011 Housing Starts data may be reason to move up your time frame.

With home supplies dropping, prices are likely to rise.

Building Permits Surge In December; Signals A Strong Spring Housing Market

Each month, in conjunction with the Department of Housing and Urban Development, the Census Bureau releases its New Residential Construction report. The report is comprised of several sections, one of which counts the number of homes that have "broken ground" in California and nationwide.

They're called "Housing Starts" and, by most measures, they faded quickly as 2010 came to a close.

According to the Census Bureau's report, Housing Starts of single-family homes fell to 417,000 units on a seasonally-adjusted, annual basis. The figure marks a 9 percent drop-off from November, and is the lowest reading since May 2009.

Not surprisingly, the press went bearish on housing post-release:

• U.S. Home Building Stuck Near 50-Year Lows (AFP)
• Housing Starts Slowed Sharply In December (New York Times)
• Housing Starts Fall In December To One-Year Low (Bloomberg)

Despite being truthful, these headlines are somewhat misleading. They each ignore a key element of December's New Residential Construction report -- Building Permits. Building Permits rose 6 percent to an 8-month high last month.

A building permit is a local-government certification that authorizes home construction. 

Permits are a precursor to Housing Starts with 82% of homes starting construction within 60 days of permit-issuance. More permits in December, therefore, should lead to more Housing Starts in January and February.

It's unclear whether permits were up because the economy was improving, or because builders raced to beat new building code for 2011. Regardless, expect additional "new home" supplies this spring which would ordinarily help home prices drop if not for the normal surge in spring buyers to gobble those new homes up.

Look for home prices to stay flat, but with rising mortgage rates contributing to higher costs of homeownership overall.

Housing Starts Data Much Better Than The Headlines Would Have You Believe

Newspaper stories can be misleading sometimes -- especially with respect to real estate. We saw a terrific example of this Wednesday.

A "Housing Start" is a privately-owned home on which construction has started and, according to the Commerce Department's October 2010 data, Housing Starts data dropped by nearly 12 percent as compared to September.

The media jumped on the story, and its negative implications for the housing market overall.

A sampling of the headlines included:

• Housing Starts Plunge: Market's 'Pulse is Faint' (WSJ)
• Housing Starts Tumble (Reuters)
• Housing Starts Sink 11.7 Percent In October (NPR)

Although factually correct, the headlines are misleading. Yes, Housing Starts fell sharply in October, but if we strip out the volatile "5 or more units" portion of the data -- a grouping that includes apartment buildings and condominiums -- Housing Starts only fell 1 percent.

That's a big difference. Especially because most new construction buyers around the country don't purchase entire condo buildings. They buy single-family residences.

As an illustration, 84% of October's Housing Starts were single-family homes. The remaining starts were multi-units.

This is why the headlines don't tell the whole story. The market that matters most to buyers -- the single-family market -- gets completely glossed over. The Housing Starts reading wasn't nearly as awful as the papers would have you believe.  Furthermore, it's never mentioned that single-family Housing Permits climbed 1 percent last month, either.

According to the Census Bureau, 82% of homes start construction within 60 days of permit-issuance. Therefore, we can expect December's starts to be higher, too.

New Home Sales Unchanged In August; Market Stabilizing

Existing Home Sales rebounded last month after a lackluster July. New Home Sales data, by contrast, did not.

After an upward revision to July's data, New Home Sales remained unchanged at 288,000 units in August. It marks the second-lowest number of units sold in a month since 1963, the year government started its record-keeping.

At the current pace of sales, the newly-built home inventory would be depleted in 8.6 months.

The August New Home Sales was weaker-than-expected, but both Wall Street investors and Main Street economists are shrugging it off. The numbers were foreshadowed by weakening housing figures from earlier this summer.

For example:

1. Building Permits dropped between March and June
2. Housing Starts dropped between April and July
3. Homebuilder confidence continues to sag

Together, these three data points suggest that the market for new homes will be soft through at least this month.

With New Home Sales fading and colder months ahead, it may be an opportune time for home buyers to look at new construction. Builders are eager to move inventory and the cost of materials remains low.

Buying "new" may never be cheaper -- especially with mortgage rates as low as they are. The 0.750 percent drop in rates since January has shaved $188 off of a $200,000 mortgage's monthly cost. That's $2,250 per year in savings.

As home supplies dwindle and mortgage rates rise, finding "great deals" in new construction will undoubtedly get tougher. Take advantage of today's market conditions, combined with builder pessimism. It may be the right combination at the right time to get that new home for cheap.

New Home Sales Unchanged In August; Market Stabilizing

Existing Home Sales rebounded last month after a lackluster July. New Home Sales data, by contrast, did not.

After an upward revision to July's data, New Home Sales remained unchanged at 288,000 units in August. It marks the second-lowest number of units sold in a month since 1963, the year government started its record-keeping.

At the current pace of sales, the newly-built home inventory would be depleted in 8.6 months.

The August New Home Sales was weaker-than-expected, but both Wall Street investors and Main Street economists are shrugging it off. The numbers were foreshadowed by weakening housing figures from earlier this summer.

For example:

1. Building Permits dropped between March and June
2. Housing Starts dropped between April and July
3. Homebuilder confidence continues to sag

Together, these three data points suggest that the market for new homes will be soft through at least this month.

With New Home Sales fading and colder months ahead, it may be an opportune time for home buyers to look at new construction. Builders are eager to move inventory and the cost of materials remains low.

Buying "new" may never be cheaper -- especially with mortgage rates as low as they are. The 0.750 percent drop in rates since January has shaved $188 off of a $200,000 mortgage's monthly cost. That's $2,250 per year in savings.

As home supplies dwindle and mortgage rates rise, finding "great deals" in new construction will undoubtedly get tougher. Take advantage of today's market conditions, combined with builder pessimism. It may be the right combination at the right time to get that new home for cheap.

New Home Sales Drop In July -- Just Like Existing Home Sales

One day after the National Association of Realtors released the softest Existing Home Sales report since 1995, the U.S. Census Bureau released a similarly-weak New Home Sales report.

Americans bought just 276,000 newly-built homes in July. That marks the fewest units sold since the government started keeping records in 1963.

In addition, although new home inventory actually dropped 2,000 units in July, the slowing sales pace still managed to push the national supply higher by 1.1 months.  At July's rate of sales, the nation's new home inventory would be exhausted in just about 9 months.

None of this news should surprise you, though. It's all been foreshadowed for weeks.

First, Single-Family Housing Starts have dropped in every month since April.  A "housing start" is a when a home starts construction and, because fewer homes are under construction, we should expect fewer homes to be sold.

Second, Building Permits are down.  The number of new permits peaked in March and have fallen 23 percent since.

And, lastly, home builder confidence ranks at its lowest levels since early-2009. A contributing factor in that pessimism is dwindling buyer foot traffic.

Regardless, there's two sides to the story. Although the New Home Sales data looks bad for builders, it can be terrific  for you. This is because new homes are more likely to be discounted when the sales cycle favors buyers.

Coupled with ultra-low mortgage rates, the cost of buying a newly-built home in the South Bay may have just become cheaper.

Single-Family Housing Starts Fade In July

Sometimes, you need to look deeper than the headlines to get the news that matters. This basic truth's latest example comes from the July Housing Starts data, as published by the U.S. Census Bureau.

According to the newspapers, Housing Starts improved last month:

• US Housing Starts Make Modest Rebound (FT)
• Housing Starts Rise Slightly (MoneyWatch)
• Housing Starts Tick Higher In July (MarketWatch)

However, these stories are speaking in terms of all housing starts -- not just the single-family ones. This is a major point of difference for home buyers in the South Bay because the most people don't buy the multi-unit homes and apartment buildings that's also a part of the Housing Starts data. 

The overwhelming majority of buyers buy single-family homes and in July, as in the previous 3 months, the number of single-family housing starts fell.

In fact, single-family housing starts are down by nearly 25 percent since April and are now at their lowest levels since May 2009.

This is a much different message from the headlines above.

It's not surprising that single-family housing starts are down; builder confidence is down as well and the two metrics tend to trend in the same direction.

Furthermore, building permits for single-family homes fell in July, too.

As a home buyer, the drop in Housing Starts should help reduce housing inventory in the months ahead.  This may lead home prices to rise because home values are based on supply and demand.  For home sellers, falling starts should help reduce competition for buyers.

Each real estate market is unique and supply levels will vary from ZIP code to ZIP code. For up-to-the-minute inventory levels, make sure to talk with your real estate agent.