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Housing Permits Near 3 1/2 Year High

Mar. 20, 2012 2:25 PM ET
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The latest piece of economic data suggests that the recovery of the U.S. economy continues to gather steam, even in the stagnant housing market. Permits for home building in February edged near a 3 1/2 year high. New building permits surged 5.1% to a seasonally adjusted annual rate of 717,000 units last month. This was the highest reading since October 2008 and exceeded most economists' expectations.

Actual housing starts in February slipped 1.1% to a rate of 698,000 units, which was somewhat below expectations of 700,000 units. January's housing starts were revised upward a bit from 699,000 units to 706,000 units. However, residential construction was up year-on-year by 34.7%, the biggest such increase since April 2010.

This latest batch of data suggests we are seeing the beginnings of a recovery in the housing market and sentiment among home builders is near a 5-year high. But one problem remains - a large oversupply of unsold homes, which has the effect of depressing house prices. But economists remain optimistic. Gary Thayer of Wells Fargo Securities said, "The data we see now indicates housing activity has stabilized and we could be in the early stages of improvement."

But if the economists are correct, we could see residential construction actually adding to economic growth this year for the first time since 2005. Although housing only makes up about 2.5% of GDP, it is still a major force in the U.S. economy. Economists estimate that for every one house built, about 2.5 jobs are created.

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