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Collected Permit Data Indicate More Variance Than the National Data Are Revealing
Jonathan Smoke / Hanley Wood / July 16, 2013
The Commerce Department releases new permits, starts, and completions data Wednesday morning. Let’s anticipate what we might see in the Wednesday report by looking at some real, market level permit data.
The survey methodology behind the Commerce Department data often causes the monthly metrics to be subject to significant revisions. More telling, and often ignored by the mainstream, is that the monthly changes are more often than not within the confidence interval, meaning that the monthly data are inconclusive about the direction and extent of change month over month.
The consensus among market watchers is that permits and starts for June in Wednesday’s report should be up 1% and 5%, respectively. That would follow an initial May report that had permits down 3% but starts up 1%. The seasonally adjusted annual rates nationally have been dancing around the 1 million mark for the whole year. Don’t expect much change or significant surprises that are statistically relevant in the Wednesday report as we seem to be locked in to about this level of activity.
Since Metrostudy collects real permit data and produces real starts and completions data by observing over 35,000 subdivisions with active construction across the U.S., we often look to our more complete data sets for more solid indications of trends and especially market level insights. This month I decided to focus on permits since they were presumably down slightly in May. Permits lead starts, so the permitting trend should tell us where starts and later completions and new home closings will be.
According to the June Commerce Department report, permits in May were at a seasonally adjusted annual rate of 974,000, which was 21% higher than May 2012. Our collected permit data, which represents most jurisdictions in the largest construction markets (more than 120 MSAs), shows a stronger year-over-year trend, and when we drill down to the state and market level we see substantial variation in growth.
The 3-month moving average of our permit data in May was up 22.8% year-to-date and up 34.2% over the average from one year prior. Not surprisingly, Texas leads the states in volume, but Florida is the clear number 2, indicating that the sunshine state is indeed seeing new construction rebound. In growth both states are also dominant but their positions are reversed. Florida is the leader showing a year-to-date 143% increase over the same period last year and Texas ranks second with 101% growth. Considering that Texas has remained relatively strong compared to most markets, it is striking to see 101% growth in new permits.
When looking at individual markets, Texas and Florida again lead in volume with the top two positions held by Houston and Dallas for year-to-date permits respectively, followed by Jacksonville and Tampa. Atlanta completes the top five, with the West represented in the top ten by a resurgent Phoenix and one of the fastest-moving housing markets, Seattle. Washington, DC continues to reflect stability by staying in the tenth position.
- Jacksonville, FL is the leader in the South with a year-to-date increase of 219% over the same period in 2012, one of the upward trends indicating the developing market recovery there along with gains such as employment growth, and construction activity is expected to continue with a backlog of new contracts for the area.
- In the West, Santa Fe, NM is making large gains with 484% growth and the top spot for the region. Santa Fe has been identified by Builder Magazine as one of the fastest-growing markets with housing prices rebounding and inventory shrinking, positioning it for additional permit activity in 2013 and beyond.
- Manchester-Nashua, NH is the Northeast region leader with 42% growth as new construction expands with inventory reductions and the diminishing market share of distressed sales also following the national trends.
- The top position in the Midwest is held by Chicago-Joliet-Naperville, IL-IN-WI which shows a 24% year-to-date increase as of May over the same period last year. Dwindling supply is again driving recovery here, as sales increase and buyer confidence is improving, a story being repeated across the country as the market continues to rebound.
Our collected permit data support the view that new construction continues to improve. But while the national numbers dance around the 1 million volume threshold, we are seeing significant growth in several major markets, some of which have remained relatively strong but are still seeing substantial growth and others that are indeed bouncing off of severe lows.