Residential building permits and construction completions in November 2012 continues to show the industry rebound, with the data again being relatively good.
- Our analysis is worse than the headline data as the BLS must average this noisy series – and we are looking at the raw data. No question, last month was a stronger month.
- Building permits have grown year-over-year for the last 19 months;
- Construction completions have grown year-over-year for 14 of the last 17 months;
- Building permits have outpaced completions for the last eleven months (all of 2012), meaning the industry is expanding.
- The rate of growth in 2012 of this sector has been in a channel between 25% and 40%. This month the year-over-year growth is higher than pre-crisis levels when the industry was in good shape.
Analysis:
- Building permits are down 16.9% month-over-month, up 32.2% year-over-year.
- Single family building permits rose 26.2% year-over-year.
- construction completions are down 14.3% month-over-month, up 17.2% year-over-year.
:
- building permits up 3.6% month-over-month, up 26.8% year-over-year
- construction completions down 9.7% month-over-month, up 16.1% year-over-year
- the market expected 870K to 876K annualized seasonally adjusted housing permits versus the 899K reported
Note that Econintersect analysis herein is based on UNADJUSTED data – not the headline seasonally adjusted data.
When more building permits are issued than residences completed – the industry is expanding – and this expansion has been underway in 2012. The “less bad” / “more good” growth trend line has been positive since 2009. In the graph below, any value above zero shows more permits are being issued than completions.
Difference Between New Home Building Permits and Construction Completions (unadjusted)
Construction completions which had not been growing year-over-year since mid-2011, experienced a growth spasm in the April data, but has since settle back to the middle of its growth channel. However, clearly permits have been trending up since the beginning of 2011. The permits data remains in uptrend improvement channels.
Unadjusted Year-over-Year Change New Homes -Permits (blue line) and Construction Completions (red line)
Other points to take away from the data:
- Before we start thinking all is well, the residential home industry has shrunk by two-thirds since the home bubble was peaking in 2005.
- Apartment permits (structures with 5 or more units) grew 38.4% year-over-year (from 60.0% last month). Apartments accounted for 36.8% of all building permits, and 20.1% of construction completions.
Caveats on the use of Building Permits Data
This is a non-monetary index. Recently, the data has had moderate downward revisions one month after initial release. Therefore, the release data this month should not be taken too seriously until next month.
This sector expands when more housing permits are issued than houses completed. The data is not necessarily accurate in real time, however. For 2011, there were more building permits than construction completions (total over a complete year) for the first year since 2005.
- 2005 = 225K more permits than construction completions
- 2006 = 140K more construction completions than permits
- 2007 = 104K more construction completions than permits
- 2008 = 214K more construction completions than permits
- 2009 = 211K more construction completions than permits
- 2010 = 59K more construction completions than permits
- 2011 = 25K more permits than construction completions
- Permits – A monthly survey of 9,000 selected permit-issuing places; and an annual census of an additional 11,000 permit places that are not in the monthly sample. The monthly sample of permit-issuing places was selected using a stratified systematic procedure. All permit places located in selected large metropolitan areas were selected with certainty. The remaining places were stratified by state. Places that exceed a cutoff value, which varies by state, were selected with certainty. Remaining places were sampled at a rate of 1 in 10.
- Construction Completions – To provide nationwide coverage of building activity, a multi-stage stratified random sample procedure was used to select approximately 900 building permit-issuing offices, and a sample of more than 70 land areas not covered by building permits. Each month, for permit-issuing places, a sample of residential building permits is selected from each of the sampled permit offices. The probability of selecting a permit is proportional to the number of units authorized by the permit. Permits for one-to-four-unit buildings are sampled at an overall rate of 1 in 50. All permits authorizing buildings with 5 or more housing units in the sampled permit offices are selected. Each month, for areas that do not require building permits, field representatives conduct a road canvass in each of the sampled non-permit land areas to identify the start of new buildings. All new residential buildings found are selected for the survey. Once a permit or building is selected, a field representative contacts the owner or builder, by telephone or in person, to conduct the interview each month as necessary. Contact continues until the project is either completed or abandoned.
- If a single-family home is not sold by the time of completion, the project will continue to be followed until the sale occurs. Each month, interviews are required for about half of the buildings currently being followed up. Each month, housing starts, completions, and sales estimates derived from this survey are adjusted by the total numbers of authorized housing units (obtained from the Building Permits Survey) to develop national and regional estimates. Estimates are adjusted to reflect variations by region and type of construction, and to account for late reports and houses started or sold before a permit has been issued. Reported data are seasonally adjusted. Monthly estimates are made for all permit-issuing places nationwide. If a survey report is not received, missing data on permits for new construction are imputed except for places that are also selected for the Survey of Construction (SOC). For these places, SOC permit data are used. We request assistance from State Data Centers to encourage jurisdictions to respond.
The US Census uses a multi-year methodology to seasonally adjust their data. Econintersect uses a simpler year-over-year analysis to seasonally adjust the data – the fear being that a major depression, government interference (incentives) in the housing markets, and other new normal effects are distorting the historical multi-year reference data.
Econintersect determines the month-over-month change by subtracting the current month’s year-over-year change from the previous month’s year-over-year change. This is the best of the bad options available to determine month-over-month trends – as the preferred methodology would be to use multi-year data (but the New Normal effects and the Great Recession distort historical data).
To say this sector is in a depression is an understatement. Please refer to the PERMIT FRED graph above.