What Does The Jump in Housing Starts Mean?

March 18, 2009


Construction Workers at Work Would Be Good to See

Construction Workers at Work Would Be Good to See

Housing starts went up in February. By now you have read in many, many, many places about how the Commerce Department announced this amazing fact yesterday (click here for the PDF). First of all, what is a “housing start?” The Commerce Department defines them as, “the number of single or multi-family dwellings that have begun construction.” It turns out that the lion’s share of these starts were in multi-family dewellings, which in this case means apartments followed by condos.

However, simply having this number go up is amazing since most people who follow such trends expected them to go down. However, many worry if it was simply a matter of nicer-than-expected weather in February allowing shovels to hit the dirt.

A Look at the Numbers

Nationwide, the Commerce Department reported that housing starts in February went up 22.2 percent when compared to January. Also important is that housing permits were up 3 percent in February as well.

However, this isn’t just a straight 5th grade percentage calculation. The Commerce Department adjusts their numbers based on historical data regarding the season. Generally there are fewer starts in the winter, and they try to take that into consideration. They try to put January and February on a level playing field by looking at traditionally how many starts are there in January and February and take that history into consideration.

If they extrapolate this information out, the Commerce Department says that if this trend were to continue, 583,000 units would be built in the US this year. This is compared to the experts in the field saying that there would likely be 450,000 units started this year. Again, the big 583,000 units is a projection based on history and the big increase in February.

In the Midwest, housing starts were up 58.5% when you compare January to February. Many of these starts are multi-unit buildings, which usually means condos. However, even single-family home starts were up in the Midwest by 12.8 percent.

This may all sound really good, but they are simply comparing January 2009 to February of 2009. When we compare January 2009 to January 2008, we see that there were 45.5 percent fewer housing starts in 2009 than in 2008.

What About Chicago’s Housing Starts?

Unfortunately the data from the Commerce Department does not include metro area information. The Chicago Tribune is reporting that Strategy Planning Associates says that, “suburban developments, sales are averaging 0.15 sales per week per project.” They don’t say if this is bad or good; it certainly sounds bad.

What Does This Increase in Housing Starts Mean?

It’s important to note that January’s housing start number was a record low. So the improvement we say in February is like taking one step up the stairs of a basement flooded with three feet of water. You’re standing in less water, but the basement is still flooded and your feet are most definitely still wet. But, any improvement is a great thing.

This news is sparking the question of whether or not this marks the end of the real estate slide. Does it mean that we’re on the upswing? There are hundreds and hundreds of answers to that question available on the web, but the real answer is none of these prognosticators have a clue.

My basic thought is that if a large number of these starts are for apartments in areas that need them, it’s great tnews. However, when we look at the slow sales in Chicago, we have to wonder if this market needs even one more new condo. As Barbara Kiviat at Time so clearly points out, with so many houses unsold on the market, is adding more a good idea? And, given what I’m hearing from my friends in the leasing business, there isn’t an over demand for apartments at the moment either given how many condo projects ended up being really nice apartments.

So, it’s good news but I wouldn’t suggest go buying that used yellow Maserati I saw in used-car lot on Ashland yesterday!

Thanks to Bill Jacobus for the photo, which he so graciously licensed under the Creative Commons License.

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About Rod Holmes

Rod has been a broker working in Chicago since 2004. He has worked with developers, buyers, sellers, and as well as managing offices. He is currently a partner in Chicago Style SEO working primarily with real estate firms to improve their Internet marketing. Rod lived for nearly ten years in Japan where he owned a corporate training and executive coaching firm with clients including Hitachi and 3M Japan. He lives in Lakeview with his wife and two children. He enjoys coaching and watching his kids participate in sports, cycling, camping, and traveling in general. You can find Rod online on Twitter at @roddesu, Facebook and LinkedIn.

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