New Construction Permits at High Levels

by 23 Apr 2012
( -- A recent report issued by the United States Department of Commerce indicates that the number of permits for new residential construction projects in March of 2012 was the highest since September 2008. The new seasonally adjusted rate of new building permits is 747,000, the highest it has been in more than three years and an increase of 4.5 percent. The report comes in the wake of a slow month in residential construction, and it is very auspicious for two reasons. First, the American economy is traditionally buoyed by construction of single-family residences and multifamily projects.

The National Association of Home Builders estimates that for every home built in the U.S., three jobs are created on an annual basis. Second, the time reference given for the report. September 2008 will always be remembered as a dark month in the history of the American economy, for it was at that time when investment banking giant Lehman Brothers crashed and precipitated the global financial crisis. The fall of Lehman Brothers was later found to have been caused mostly by its excesses in mortgage and real estate investments, thereby putting an immediate halt in the housing market. Real estate and mortgage activity in the U.S. since September of 2008 has been characterized by home loan delinquencies, foreclosures, frozen construction projects, strict lending, and stagnant property sales. To record the highest number of new residential building permits since September 2008 is very symbolic and promising for the American economy.

Multifamily Construction Projects Lead the Charge Some real estate analysts warn against looking at the numbers with too much optimism due to the high number of apartment complexes and attached town homes currently under construction. Demand for multifamily housing has shot up in the last few months due to a red-hot rental market that is attracting real estate investors for the first time in years. As a result of this heightened pace in construction of multifamily projects, some real estate reports could be skewed due to volatility. When building permits are tallied, each residence counts as a unit. When many multifamily construction projects file for permits or are completed simultaneously, figures can adjust drastically.

Construction of single-family homes remains flat, and it is expected to remain at such levels until real estate inventories of distressed properties pares down significantly. This inventory is part of what is often referred to as the shadow market, something that presents a challenge to home builders. The average median home prices also stand in the way of a full-blown residential construction since they are typically about 30 percent lower than new homes.


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