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Housing Starts Decline in November Even as Builder Confidence Rises

Despite a continuing surge in builder confidence, housing starts dropped 3.0 percent in November to 861,000, the ""Census Bureau and Department of Housing and Urban Development (HUD)"":http://www.census.gov/construction/nrc/pdf/newresconst_201211.pdf reported jointly Wednesday.

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At the same time, start activity for both September and October was revised lower.

Applications for permits, according to the report, rose 3.6 percent to 899,000--the highest level since July 2008--as permit activity for October was revised slightly upward.

Economists forecast starts would drop to 865,000, but permits would increase to 875,000.

Housing completions in November tumbled 9.6 percent below the revised October estimate of 750,000 but sat 16.1 percent higher than November 2011.

Even though the Housing Market Index (HMI) compiled by the National Association of Home Builders has improved for eight straight months, largely on the strength of the measure of buyer traffic in showrooms, the gain in permits was due primarily to a surge in applications for multifamily structures, two or more units, which showed a 10.6 percent month-month gain in November. Permits for single-family homes indeed fell to 565,000 from 566,000 in October.

Single-family starts dropped 4.1 percent in November, accounting for most of the drop in total starts. Activity was unaffected by superstorm Sandy, which hit the Northeast at the end of October, as most of the drop in single-family starts came in the West and Midwest.

Despite the decline in starts, the report could still be a positive indicator for the residential investment component of gross domestic product for the fourth quarter: Starts in the first two months of the quarter are up 18.3 percent over the first two months of the third quarter, which showed a 1.7 percent increase over the second.

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The monthly drop in single-family permits--though scant and subject to revision--was the first monthly decline since March. Multifamily permits rose to the second highest level since July 2008, with 334,000 permits topped only by 340,000 multifamily permits in September.

As the October jump in completions was primarily due to multifamily structures, so was the decline in November. Multifamily completions rose by 72,000 in October and fell by 62,000 in November.

Starts continue to show long term improvement, averaging 804,000 per month in the last six months compared with 633,000 for the same six months last year. Despite the drop in November, single-family starts remain on an upward trajectory, averaging 553,000 per month in the last six months compared with 436,000 per month in the same six month period a year ago.

Permits have also surged, averaging 838,000 per month for the last six months compared with an average of 791,000 per month thus far this year and 650,000 for the same six months in 2011. Permits for single-family construction have averaged 532,000 per month in the last six months compared with 430,000 per month for the same period a year ago.

Single-family completions continue to outpace new home sales, averaging 500,000 per month for the last six months compared with sales of 366,000.

Single-family permits represented 62.8 percent of all permits in November, down from 65.2 percent in October. Single-family permits have averaged 64.0 percent of all permits this year, down from 67.0 percent for the same period in 2011.

Underscoring the shift in housing preferences, single-family starts have represented 68.9 percent of all starts to date in 2012, down from 70.6 percent in 2011.

Total starts rose in two of the four census regions, improving 15,000 in the South to 458,000 and 5,000 in the Midwest to 158,000 while dropping 41,000 in the West to 172,000 and 4,000 in the Northeast to 73,000. Single-family starts were up 5,000 in the Northeast to 46,000 and 4,000 in the South to 295,000 while falling 23,000 in the West to 126,000 and 10,000 in the Midwest to 98,000.

Total permits rose month-over-month in the Midwest, South, and West while falling in the Northeast. Single-family permits increased only in the West.

_Hear Mark Lieberman every Friday on P.O.T.U.S. radio, Sirius-XM 124, at 6:40 am and again at 9:40 eastern time._

About Author: Mark Lieberman

Mark Lieberman is the former Senior Economist at Fox Business Network. He is now Managing Director and Senior Economist at Economics Analytics Research. He can be heard each Friday on The Morning Briefing on POTUS on Sirius-XM Radio 124.
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