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 Ohio 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.
The number of single-family Housing Starts increased in November, adding 30,000 units as compared to October.
The Census Bureau defines a “housing start” as a home on which construction has started.
November’s starts represents a 7 percent increase from the month prior. However, if you see the Housing Starts story online or in the papers, you’ll notice that the press is calling the market gain at 4 percent.
So which result is right? The answer is both.
The government’s monthly Housing Starts data is published as a composite report; lumping activity among 3 separate housing types into a single, group reading.
The 3 housing types are:
- Single-family homes (i.e. 1-unit)
- Multi-unit homes (i.e. 2-4 units)
- Apartments (5 units or more)
The group reading is a fair description of the market and it’s easy-to-understand. As a result, it’s what the press tends to report. However, for home buyers in Kentucky , it’s the single-family category that’s most relevant.
The reason why single-family homes accounted for 84% of November’s Housing Starts is because that’s the type of home that most buyers buy. Few purchase 2-4 unit properties, and even fewer buy entire apartment complexes.
That said, it’s possible that November’s Housing Starts data is wrong. Within the press release, the government placed an asterisk next to the data, indicating that the figure’s margin of error exceeds its actual measurement.
Against a 7 percent gain, the reported margin of error is 13.5%. There is no statistical evidence, therefore, to prove the actual change was different from zero.
If Housing Starts did fall in November, it will help to reduce the Madeira housing inventory, which will, in turn, help keep home prices high. For home sellers, this could mean good news. Fewer homes for sale increase competition among buyers.
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 in Madeira and 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.
According to the Commerce Department, the number of single-family Housing Starts increased to 452,000 units in September, a 19,000 improvement over August.
A “housing start” is a new home on which construction has started.
Housing Starts data is surveyed and broken-down by housing type:
- Single-Family Housing Starts
- Multi-Unit Housing Starts (2-4 Units)
- Apartment Building Housing Starts (5 or more units)
The government logs each type separately, but also lumps them into a single, comprehensive figure within its reports. For this reason, headlines surrounding the story seem contradictory.
- Marketwatch : Housing starts rise for 3rd straight month, up 0.3%
- CNN : Housing starts jump to 5-month high
It’s single-family homes that most Americans purchase, though, and that’s why single-family starts are the numbers worth watching. As 75% of the market, it’s more relevant than the joint numbers most commonly reported by the press.
In September, single-family starts did move to a 5-month high but buyers and sellers in Madeira should keep the figures in perspective. Just because starts are rising doesn’t mean the housing sector has turned around for good.
The first reason why is because, in September, starts were 75 percent less as compared to 5 years ago at the peak of housing. And if you feel that’s an unfair comparison, even as compared to the last 12 months, September’s data was tens of thousands below average.
Second, September’s Margin of Error happened to exceed its actual measurement. This means that the 4 percent in starts may actually turn out to be a loss of 4 percent (or more!) once the data is collected in full.
If there’s a reason to think the New Homes market is coming back, though, it’s that home builder confidence is also at a 5-month high. Foot traffic is rising and builders are optimistic about the next six months. This could mean higher sales prices and less chance for negotiation.
Buyers in search of new homes may find it tougher to make a deal the closer we get to 2011.
The number of single-family Housing Starts rebounded in August, climbing 4 percent from July’s 14-month low.
A “Housing Start” is defined as a home on which construction has started and the August increase represents 18,000 single-family units nationwide.
If you only read the headlines, however, you would think the data was stronger. This is because the Housing Starts data is actually a composite of 3 types of homes — single-family, multi-family, and apartments — but the press tends to lump them all three together.
As a sampling, here are a some headlines on the story:
- US Stock Futures Rise After Housing Starts Surge (WSJ)
- Housing Starts At 4-Month High, Hint At Stability (Fox)
- Housing Starts Jump 10.5% In August (Marketwatch)
Now, it’s not that the news is wrong, per se, it’s just not necessarily relevant. Few home buyers in Madeira are buying multi-family homes or entire apartment complexes. Most buy single-family and, for the first time since April, single-family starts are on the rise — just not by as much as you’d believe from the papers.
Even still, we can’t be entirely sure that the August Housing Starts data is accurate anyway.
A footnote in the Department of Commerce report shows that, although single-family starts are said to have increased 4 percent, the data’s margin of error exceeds its actual measurement, meaning the data has “zero confidence”.
In other words, starts may have dropped in August, but it’s something we won’t know for sure until revisions are made later this year.
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 Cincinnati 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.
Single-family housing starts plummeted to a one-year low in May, just 30 days after soaring to a 20-month high. It’s no wonder home builders are confused.
Against a revised April figure, Housing Starts fell 97,000 units in May, a figure representing almost one-fifth of the total market size.
It’s the worst showing for Housing Starts since May 2009, a surprise to builders and economists alike.
Furthermore, single-family Building Permits plunged in May, too — down 10 percent from April. A permit is a certification from local government that authorizes home construction.
Housing permits are a precursor to Housing Starts with 82% of homes starting 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 in Mason , this should create a sense of urgency.
Home prices are based on supply and demand and supply appears to be falling about the same time that economists predict a surge in home demand. It could spell rising home prices and a complete loss of negotiation power with home sellers.
For now, though, home affordability remains high with properties cheap and mortgage rates near all-time lows. If you plan to buy a home later this year, the May 2010 Housing Starts data may be a reason to move up your timeframe a bit.