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    Hold the Celebration, US Housing Starts Revert to Trend


    New residential construction in April jumped to its highest level in more than seven years, but the increase was more a return to the gradually increasing trend of the last 36 months than a sign of surging strength in the housing sector. 

    Yesterday's Commerce Department release showed housing starts rose 20.2 percent to a 1.135 million annualized rate last month from 944,000 in March. It was the best construction pace since November 2007 and well above the 1.02 million median forecast.  

    Building permits also climbed strongly to a 1.143 million annual rate, 10.1 percent above the 1.038 million pace in March. Economists had predicted 1.064 million permits. 

    In February and March new construction had fallen substantially below the slowly rising trend, in place though somewhat fitfully, since early 2011, as home building was battered by a severe winter in half the country.

    February starts were just 900,000, an 180,000 drop from January and, more importantly, about 160,000 less than the approximate 1.060 million trend line for the month. March was similar, 944,000 starts and about 116,000 below trend. The combined deficit in housing starts for February and March was 276,000.  

    The 191,000 jump in starts from March to April is entirely due to the replacement of the weather delayed starts from February and March. In fact there remains a 201,000 deficit if the trend average of 3.18 million for the three months is compared to the 2.979 million actual starts. 

    Yes it is true that over the past two years a slowly improving labor market and mortgage costs close to historical lows have helped revive home construction. It is also true that weather seriously affected building in February and March.

    The surge in housing starts in April does not represent, at least not yet, anything other than a brief season of winter catch-up.


    Joseph Trevisani

    Chief Market Strategist

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