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Building Permits Drop 5.7% in March, but It’s All Good

Building Permits Drop 5.7% in March, but It’s All Good

dpproductions/iStock

dpproductions/iStock

The number of newly issued building permits in March shrank by 5.7% from February, raising the question of whether new construction will fill the housing inventory void this year—but experts said there’s no reason to panic.

According to the U.S. Commerce Department, homebuilders were granted a seasonally adjusted 1,039,000 permits in March, down from 1,102,000 in February. Permits are a leading indicator of the health of the new-construction industry. Homebuilders are not building speculative housing—they are waiting for a signed contract and hefty earnest money deposit before applying for a building permit to then start construction.

Monthly declines aside, permits are up 2.9% from March 2014 to March 2015, according to the report.

“One month does not make a trend,” said Jed Smith, managing director of quantitative research at the National Association of Realtors®. “There is a continuing underperformance of the new-construction market, but it’s still better than where we were.”

Smith says many small homebuilders have gone out of business since the housing bust. The remaining small builders, he says, suffer from lack of access to credit, lack of skilled workers, and lack of building materials.

To return to a normal market, Smith says builders would have to construct 1.5 million to 1.6 million new homes this year. They’re on track for about 1.2 million, he said.

Housing starts—which is when the builder breaks ground for a new home—rose by 2% in March, but that was well below reported expectations of a 15.9% increase.

Yet, Jonathan Smoke, chief economist for realtor.com®, says that given the harsh winter weather in the first quarter of the year, it’s no surprise new-construction activity was down in March.

“I’m not convinced the March statistics are relevant yet,”  he said, pointing to the yearly increases.

For the year to date, housing permits are up 8%, Smoke said. “In some regions, we’re seeing double-digit gains. It shows we’re making progress—it’s not even remotely enough to relieve the inventory shortage, but we’re moving in the right direction.”

In the western and southern regions of the country, single-family building permits are up 10% for the year to date, according to the report. The Midwest is up 5%, and only the Northeast is down, by 14%.

Maybe it’s weather-related, but homebuilders completed only 823,000 houses in March, 3.9% below February and 5.8% below March 2014, according to the report.

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