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What to Make of the Drop in Building Permits Issued in February

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The housing industry and building permits

The US Census Bureau and Department of Housing and Urban Development report monthly data on building permits issued in the United States. The number of building permits issued is a useful tool in forecasting demand and supply in the housing sector (REM). This metric is also considered a leading forward indicator for the economy. An increasing number of building permits is a sign of future construction (ITB) activity, which could lead to higher employment and economic output.

As per the latest report, in February, housing units (XHB) authorized by building permits were at a seasonally adjusted rate of 1.29 million, a decrease of 5.7% from the revised January reading of 1.37 million units.

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Single-family versus multifamily housing permits

The decrease in building permits spanned across the sectors in February. As per the latest report, building permit authorization for single-family homes has decreased by 0.6% to 872,000 units as compared to the revised January reading of 877,000. Multi-family unit authorizations have decreased by 14.8% from 452,000 units to 385,000 units. The year-over-year comparison has been positive with the total permits issued improving by 6.5% as compared to the same period last year.

The outlook for the housing sector

The decline in the number of building permits issued was primarily in the multi-unit sector, which tends to be volatile. The positive takeaway is the continued improvement in the single-family units, which are twice as beneficial to the economy and the housing sector (PKB) as compared to the multi-family units. Homebuilders (DHI) remain optimistic as growing wages and an expanding economy are likely to drive demand for housing higher. In the next part of this series, we’ll analyze the rebound of existing home sales in February.

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