Single Family Construction Permits Rise

Construction permits for single-family homes rose again in July, increasing 5.8 percent to an annualized rate of 458,000, according to figures released today by the Commerce Department.

A sharp decline in demand for construction permits for apartment buildings and condominiums caused the overall rate of new housing construction permits to fall by 1.8 percent from June, but the increase in single-family permits demonstrated continued recovery in a key area of the housing market. Single family units typically make up about 75 percent of all new housing construction.

Construction permits for single-family units have risen every month in 2009 except one, a brief downturn in March. Single-family construction permits have risen by nearly a third since reaching a low of 342,000 units in January, although they remain 20 percent below last year's figures, when the July 2008 annual rate stood at 575,000 units.

"Monthly data for housing activity are volatile but today's nominal decline (for all permits) stands as a reminder that the economy is still fragile," said U.S. Under Secretary of Commerce for Economic Affairs Rebecca Blank in a statement accompanying the figures. "Looking at the big picture, we are confident that we've created the stability necessary to turn things around. As we double Recovery Act spending in the second half of the year, and with every new project we start, we are one step closer to getting there."

Multiunit construction continues to decline

Permits for apartment and condominium-type buildings, both of 2-4 units and of five units are more, declined by more than 20 percent in July, dragging down the monthly total for all housing construction permits. On a long-term basis, permits for 2-4 unit buildings have remained relatively flat since January, generally at an annual rate of 18,000-20,000 units, while permits for larger residential structures have fallen dramatically during the same time, owing to a glut of new condominiums on the market.

Permits for construction of residential structures of five units or more fell to an annual rate of 84,000 units in July, their lowest level since the peak of the housing market and 75 percent below the July 2008 annaul rate of 318,000 units. The rate has fallen by more than half since January, when it stood at 169,000 annual units.

Actual construction starts on residential properties declined slightly in July, down 1 percent from June. Again, construction starts among single-family homes rose by 1.7 percent from the previous month, while multiunit construction starts fell by more than 16 percent.

Rising construction permits and construction starts are considered a leading economic indicator, particularly in the case of single family homes because they are the dominant sector of the home construction market. Rising rates of new home construction not only creates jobs for construction workers but also fuels a secondary market in home furnishings and other expenditures typically made when moving into a new home.

However, the falling rates of multiunit construction continue to be a drag on the overall economy because they typically account for a big share of construction jobs. Until the current surplus in multiunit properties works its way out of the market, the construction sector will likely remain weakened.