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Housing starts surge, and analysts see bottom

January 12, 2012

Housing starts surge, and analysts see bottom

Led by multifamily construction, housing starts and building permits increased in November. Analysts see light at the end of the tunnel, but it could be a long tunnel.

The number of new homes that began construction rose 9.3% in March, and the stock market went wild over the news.

Other analysts were a bit more subdued over the uptick, which was led by multifamily construction. But we heard more than one suggestion that perhaps the end of the housing slump is in sight.

“While we still have a long way to go back to normal, the latest numbers are one more indication that housing is slowly turning the corner,” Bob Nielsen, chairman of the National Association of Home Builders, said in a news release.

Housing starts jumped 9.3% from October to November, to a seasonally adjusted annual rate of 685,000, the highest number since April 2010. Multifamily construction leaped 25.3%, while the number of single-family homes started rose 2.3%, the Commerce Department reported.

The number of building permits issued rose 5.7%, to the highest rate since March 2010.

The numbers were higher than analysts had predicted, which always makes the stock market happy.


“It’s a solid report,” Brian Jones, a senior economist at Societe Generale in New York, told Bloomberg. “For months we’ve been flagging the strength in multifamily construction, but now we’re starting to get signs that single-family is pulling itself off the canvas.  Several factors have brought some cheerier housing numbers lately:

But does it mean the beginning of the end of the crisis? Once again, the big question is how much more shadow inventory is still to hit the market, and at what pace. Another important issue is the economy as a whole: When will people feel secure enough in their jobs to buy homes or move up to new homes?

Many analysts expressed cautious optimism. Nathan Snyder, portfolio manager at Snow Capital Management, told Reuters:

“The housing stuff seems like it’s bottoming, which is obviously the first step to recovery. How long it bottoms will be anybody’s guess, but we needed it to bottom. … So this is something that is a chicken and the egg issue: Obviously construction drives employment, employment drives housing. And there is a virtuous cycle there, if we can ever reach a bottom and start building off of that. The main hope is that we are at least near that bottom, but the bottom could last awhile. So it could start to turn up in the next six months or 18 months, but the next leg is up, not down, from here.”
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