Posted by Marcelo Perez

New residential construction surged in the latest month, as the nation’s homebuilders were helped in February by a boom in demand for multi-family homes. Housing starts for February surged 22% to a seasonally-adjusted annual rate of 583,000, the largest increase in 19 years and the first in eight months. In January, housing starts stood at 466,000, the lowest level on record (records have been kept since 1959). The report was a pleasant surprise, as a new record low of 450,000 annualized units was expected. In the last year, however, housing starts fell by 47%, to a 1,107,000 annual rate. For some perspective: In all of 2007, 1.355 million homes were started. In 2006, 1.8 million homes were started.

Building permits, an indicator of future construction, rose by 3.0% to 547,000 annualized units. Permits for single-family homes, considered by many analysts as the most important figure in the report, surged 11% to 373,000, the largest percentage gain in 18 years. Both are coming off record lows. Building permits in particular are down 44% in the past year.

Via MarketWatch:

The large declines in the past few months could be good news for the economy, on the principle that when you are in a hole, the first thing to do is to stop digging, said UBS economists Maury Harris and Jim O’Sullivan ahead of the report. “The more starts plunge now, the quicker home inventories are likely to be reduced, potentially limiting the ultimate drop in home prices (the main cause of the financial crisis),” they wrote.

After seeing plunging starts and record lows over the past few months, we may have finally turned the corner in the housing market. Inventories continue to fall and sales are slightly up in certain parts of the country. Although one month certainly does not make a trend, this report is a huge positive, and a further increase in March could solidify the recovery argument. Some economists do argue that this was a weather-related phenomenon, though, as February was milder and much warmer than the previous month, making construction easier.

New construction on single-family homes rose by 1.1% for the month, to an annualized rate of 357,000, after falling to a record low in January.

Via FT Advisors:

There is just not that much room left for major declines. Back in 2005, single-family starts peaked at a 1.75 million annual rate, of which 1.4 million were built for sale (as opposed to knockdowns, for example). Now, single-family starts are running at a [398,000] annual rate with only about 280,000 being built for sale. This is not nearly enough to meet the demand for new homes, which is still running at about 400,000 per year. So inventories will continue to fall quickly. In addition, from a long-term perspective, with new home sales eventually returning to an average annual pace of 900,000+ (due to population growth and a taste for new homes), we expect building activity to rebound quickly in 2010 once inventory levels are back to normal.

Construction on buildings with 5 units or more climbed by an astonishing 82% for February, in a clear sign that rental properties may be in demand once again.

Regionally, total starts surged 89% in the Northeast and 58% in the Midwest. Starts in the South and the West, the hotbeds for the housing over-exuberance that has occurred, rose 30% and 25%, respectively. Starts are coming off record lows in three of the four regions in January, while starts in the West were at their lowest levels in 42 years.

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