A few notes on the jump in housing starts

This morning the Department of Commerce reported (PDF) that housing starts jumped 22% in February to a seasonally adjusted annual rate of 583,000. January’s figure, 477,000, had been a record low. Some commentators are taking the uptick as a sign that the housing market may be bottoming, though other MSM regulars—a couple of whom are my bosses—are asking if this isn’t actually bad news. With so many existing homes sitting around unsold, do we really need to be building that many more?

A good question. But before we go too far down that road, I would point out that housing starts data are notoriously volatile. Another, steadier measure of new-home activity—building permits—is also up, though much less fantastically. Permits rose 3% in February, and for single-family homes they were up 11%. Overall, permits are still down 44% from where they were a year ago.

So what’s going on with starts? A big part of the jump came from condos, apartments and townhomes. And a fair amount of that activity flowed from warmer-than-expected weather. If that leads you to think maybe we should give the data another month or two before we start drawing trend lines, I’d be likely to agree with you. As one analyst cautioned, we might be looking at a “weather-related fluke.”

It could also be a data-related fluke. Journalists almost never report on statistics precisely, which I’m sure drives all manners of social scientists batty. Here’s the actual wording from the press release: “Privately-owned housing starts in February were at a seasonally adjusted annual rate of 583,000. This is 22.2 percent (±13.8%) above the revised January estimate of 477,000, but is 47.3 percent (±5.3%) below the revised February 2008 rate of 1,107,000.”

In other words, housing starts could be up 36%, or they could be up 8.4%. It’s a range. And, technically, we’re only 90% sure the real figure is in that range.

Which is probably why there’s also this line: “In interpreting changes in the statistics in this release, note that month-to-month changes in seasonally adjusted statistics often show movements which may be irregular. It may take 3 months to establish an underlying trend for building permit authorizations, 4 months for total starts, and 5 months for total completions.”

Barbara!

Stocks Rally Further in Run-up to EU Summit

MOSCOW — Global stocks enjoyed one of their best days in weeks on Tuesday ahead of a summit of European leaders that’s expected to be dominated by calls to boost economic growth.

Europe remains the focus of attention across all financial markets in the run-up to the June 17 Greek election that could go a long way to determining the country’s membership of the euro as well as the future of the single currency zone.

headspacej

I imagine that the bulk of those new housing starts are in places where prices haven’t gone down as much and places with fewer foreclosures. It would be interesting to see the regional distribution of housing starts vs foreclosures.
bryanfromhouston

Right now I vote for a blip on the radar screen.
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That said, unseasonably warm weather coupled with reduced labor and construction materials could have provided a statistically relevant but small number of Americans [who had not already purchased, saved a downpayment, and were seeking an opportunity to build on their own terms and maximize their buying power] good cover to begin the home building process.
ericczhang

Could somebody explain to me why warmer than expected weather would increase condo, apartment and townhouse starts?
deported

Anyone who has been looking for a home recently knows that the data makes perfect sense. All of the good properties were picked up months ago. Nothing left out there but a bunch of leftover garbage. Good properties get sold in a matter of days. The homes still for sale need too much work to be worthwhile.
arbitrarystring

Could somebody explain to me why warmer than expected weather would increase condo, apartment and townhouse starts?

An early spring lets builders start projects earlier, rather than waiting until April or May.
bryanfromhouston

To piggyback on what deported said:
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We know that there is some noise in the signal. How much of that is due to garbage properties? We may never know. Governments have no incentive to knock down properties as it destroys potential tax revenue. Builders don’t care, because if the property sold, the new owner has to handle the garbage. And lenders, well, let’s just say that there are smelly fish in the garbage but they really don’t want to go digging around and confirm that there really is something there that stinks right now.