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What to Make of the March Increase in Building Permits Issued

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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 demand and supply conditions within the housing (REM) sector can be assessed by observing the changes in the number of building permits issued. An increase in the number of building permits in any given month is a signal of increased activity in the housing sector in the future, as construction (ITB) activity begins after a few months of the issuance of a permit.

As per the March report, housing units (XHB) authorized by building permits were at a seasonally adjusted rate of 1.4 million, an increase of 2.5% from the revised February reading of 1.3 million units.

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Single-family versus multifamily housing permits

The increase in the number of building permits was primarily the result of a rising number of multifamily permits. As per the latest report, building permit authorization for single-family homes has decreased 5.5% to 840,000 units in March compared to the revised February reading of 889,000. Multifamily unit authorizations have increased 22.9% from 385,000 units to 473,000 units. The annual growth rate in permits is at an impressive 7.5%, with multifamily unit permits increasing 29.9% over the last 12 months.

Outlook for the housing sector

The increase in the number of building permits in March was the result of an increased number of multifamily housing unit permits. The number of single-family permits has fallen 5.5%, while the number of multifamily permits has risen 22.9%. The number of building permits issued for multifamily housing tends to be volatile, and this trend could be worrying for homebuilders who might want an increase in the number of single-family permits.

Single-family units have a higher positive impact on the housing (PKB) sector. Homebuilders (DHI), however, remain optimistic as growing wages and an expanding economy are likely to drive demand for housing. In the next article, we’ll analyze the rebound of existing home sales in March.

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