New Construction Permits Almost at Record Highs

by 27 Mar 2012

( -- 3/27/2012 -- A recent report by the United States Commerce Department indicates that the number of permits filed for construction of new homes is approaching its highest numbers in more than three years.

The annual rate of new permits currently stands at 717,000. The last time a similar figure was reported was in October of 2008; virtually the same month that the bursting of the housing bubble had its most severe repercussion with the fall of Wall Street investment banking firm Lehman Brothers. Financial markets around the world tumbled after that event, and foreclosures in the U.S. formed an avalanche. As expected, the flow of new construction permits came to a standstill.

Prior to the release of the report by the Commerce Department, economists had predicted a seasonally-adjusted rate of 690,000 permits. The pleasant surprise of a higher-than-expected number is leading some economists to believe that construction of new housing units could be a decisive factor in the growth of the American economy in 2012. The last time housing starts contributed to the national economy was in 2005.

The report is a clear sign that the recovery of the American real estate market is underway, but Wall Street did not seem to pay attention to the positive news. Investors seem to be more concerned with the large supply of existing homes in the market that are stubbornly refusing to be sold at healthy pace. Existing home prices have not stopped their decline, and the February new construction permits were actually a bit lower from January.

Multifamily Housing vs. Single-Family Residences

An emerging trend observed in the number of new construction permits that cannot be ignored is the higher number of permits for apartment buildings. Home ownership is no longer seen as the paragon of individual finance, and thus many former homeowners are not quite ready to re-enter the real estate market yet.

The current preference towards rental properties is attracting investors who have doubled the number of new construction permits for multifamily projects in the last 12 months.

On a month-over-month basis, the permits for construction of new single-family residences increased by 4.9 percent. On the other hand, multifamily new construction permits increased 5.6 percent.

Residential construction currently contributes 2.5 percent of America's Gross Domestic Product (GDP). Optimistic real estate analysts think that 2012 could see an increase of 20 percent in residential construction activity; something that would greatly contribute to GDP thanks to job creation.



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