Housing Affairs Letter

Housing Signals Mixed But Upbeat

Building permits for single-family homes surged in the second half of 2011 in states hardest hit by the foreclosure crisis and housing starts hovered near a three-year high in February, signs that the housing market is beginning to stabilize.

Building permits, a proxy for future construction, increased to a 717,000 annual pace in February, the highest since October 2008, the Commerce Department report says. Experts had predicted a 686,000 annual rate rise.

Census Bureau data compiled by the Federal Deposit Insurance Corporation show that permits in the hardest hit states of Nevada, Arizona, Georgia and Florida increased in a range of 16.1% to 26% in the fourth quarter compared to the same period in 2010, with Florida showing the most significant rise at 26%.

Housing starts dropped 1.1% in February but remained 34.7% above levels reached a year earlier. The emphasis continues on multifamily construction, which showed a 21% increase. Starts on single-family homes were down more than 9% last month.

Economists say homebuilding remains congested by deeply discounted foreclosures and short sales, as well as a continuing inventory of foreclosed homes. But they say growing housing demand and continued employment growth are likely to improve market conditions later in the year.

In another area, sales of existing homes dipped in February, but the sales pace was the best in five years, statistics from the National Association of Realtors show. Home sales fell 0.9% to a seasonally adjusted rate of 4.59 million, down from a revised 4.63 million sold in January -- the highest level since May 2010. Sales have been helped by a mild winter and stronger job market.

But sales remain below the 6 million that economists equate with healthy markets. Sales among first-time homebuyers fell to 32% of all purchases, below the 40% that signals a healthy market. 

At the same time, the supply of homes nationally has dropped to its lowest level in seven years. With mortgage rates at near record lows, the dwindling inventory is expected to push up home prices, a lure for buyers wanting to invest in homes appreciating in value.

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