New construction on residential housing slowed sharply last month, the Census Bureau reports, while newly issued permits in March rose to the highest level since September 2008. In other words, there’s mixed news on the housing front, although the ongoing climb in new permits suggests that construction activity will soon be turning higher.
The retreat for housing starts surprised many economists, but it’s important to put the latest numbers in context. It’s fair to say that the modest recovery in housing remains intact. Although housing starts last month totaled 654,000 (seasonally adjusted annual rate), or down from February’s 694,000, the year-over-year change is still comfortably in positive territory (10%-plus as of last month), as it has been since last September. The fact that new permits are growing at a much faster rate implies that housing construction will continue to expand, if only modestly. In turn, that’s a hint that construction payrolls, and all the related spending that flows from housing activity, will improve, if only slightly.
It’s clear that even a slow-growing housing market is a big plus because it no longer a drag on the broader economy. Residential real estate was at the epicenter of the financial crisis and the recession, and so it’s no trivial matter to see this sector moving to a net positive.
Nonetheless, it’s premature to expect strong, sustained growth anytime soon. “Housing continues to bump along the bottom,” notes Jacob Oubina, a senior U.S. economist at RBC Capital Markets. “The best we can hope from housing over the next couple years is that it won’t subtract from growth. The numbers in the past few months were decidedly impacted by a much milder winter, so a significant portion of construction was pulled forward.”
That sounds about right, and today’s numbers appear to be following this script. The headwind of reducing the foreclosures and working off the excess inventory is still with us, and will be for some time—probably another couple of years at a minimum. But progress, albeit uneven and vulnerable progress, can’t be dismissed as the path of least resistance. If you’re looking for a potent catalyst to shake the economy out of its doldrums, however, you’ll have to look elsewhere. Housing is beginning to walk, which is a major step up from lying face down in the macro ditch. But it’s going to be a while before there’s any running here.