Should the New-Construction Numbers Worry You?

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Uh-oh. Fewer new homes were authorized in September than August, the Commerce Department reported on Tuesday morning. The 5% dip in building permits means fewer housing units to ease the crunch in many cities and towns across the country, where prices rose at astounding rates over the spring and summer. And last month? It was a bit on the slow side, too.

Still, the 1,103,000 permits issued were 4.7% more than a year ago, when 1,053,000 permits were authorized. Should those eager for a more fluid housing market hope or mope?

Well, it’s complicated. On the one hand, there seems to be some good news. Housing starts—construction projects started but not yet completed—rose 6.5% from August to September, and were 17.5% above September 2014. Single-family starts were up a lowly 0.3%; it’s multifamily that’s the future of housing. There were 454,000 housing starts on buildings with five units or more in September; in August there were 388,000 multifamily starts.

As for September new-construction completions, they were up, too: 7.5% above August and 8.4% above September 2014.

“This was a mixed report, generally consistent with the slow and steady growth we’ve seen in new construction over the past two years,” our chief economist Jonathan Smoke said.

As always, take these numbers with a fairly sizable grain of salt. The margin of error in these estimates is almost always larger than the estimated percentage.

“We’re not certain that the gain is real, given the thin and noisy sample,” Smoke said.

Also, the gain in starts over permits has him, and other experts, worried. “It’s concerning that starts are not faster than permits,” Smoke said. “This would indicate a slowing down in new construction overall and likely declines in starts and completions in the months ahead.”

The bottom line: This too-slow pace of new construction is bad news for home buyers. “The housing shortage only worsens if this remains the picture,” Smoke said. “Tight supply of homes for sale and low vacancies will continue to be the norm and, along with that, higher rents and prices.”

But builders—the key to an increase in supply and some relief in a tight market—are still feeling pretty good. The National Association of Home Builders released a report on Monday that builder confidence rose 3%. At least they aren’t moping.