Housing Starts Sink, But Bright Future Ahead

New construction took a hit in February, but building permits are on a roll.


Despite breaking ground on slightly fewer homes in February, builders are gearing up for what could be the most active spring home buying season since the housing market tanked several years ago.

New construction was down about 1 percent from January, according to the Commerce Department, but the report had a sliver of good news as well. Not only did the government revise January's figures upward, but building permits—a good indicator of future building activity—jumped more than 5 percent in February.

Looking back a year, housing starts were up almost 35 percent.

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But even several years after the housing market fell off a cliff, more than a few people might be scratching their heads after hearing that new construction is ramping up again. After all, isn't the surplus of housing supply hindering the housing market recovery?

It's true the United States has an inventory problem, but it's not in the new housing sector.

"The excess inventory is in the existing market: foreclosures and people who've been trying to sell for years," says David Crowe, chief economist at the National Association of Builders. "The inventory in the new [housing market] is at historic lows."

In any housing market, there are going to be buyers who just aren't interested in purchasing a previously-owned home, Crowe says. That demographic is sorely at a loss for choice right now, especially in certain markets with healthy local economies and job growth.

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"If you look at Las Vegas, you might question why they're building more homes," Crowe says. "But if you're looking at Austin, Texas, you would see a very vibrant economy and renewed demand [for housing]."

That growing trend has caused builders to cheer up over the past several months. Though confidence measures stayed pat in March, they've doubled over the past six months, according to the NAHB.

"That confidence is up and has stayed up, that says builders saw a lot of traffic and buyer interest, but that interest has not yet converted itself into significant sales," Crowe says.

Nevertheless, that heightened traffic and interest is what makes builders—and experts—hopeful for a robust buying season this spring.


Twitter: @mmhandley