New Residential Construction Permits Climb 16.7% in December

The January 19th, 2011 report from the U.S. Census Bureau indicates that December 2010 housing permits were up over 16.7% from November. Although multi-family permits fell, this is the fourth consecutive increase for single family permits. The lumber and building material industry has suffered greatly in the housing down-turn, increasing new home construction would give the economy in general and the building material industry in particular a significant boost.

The probability of a severe housing shortage this year has been predicted by several economists, as new home supply dwindles and the bargains in foreclosures become harder to find. A resumption of new residential structure construction will fuel new job creation as construction workers go back to work. This will have a positive affect on national homebuilders such as Ryan Homes, Lennar and Beazer. Also, manufacturing jobs will be created for building material products such as lumber, siding, windows and doors. There would also be an increased need for electrical and plumbing materials and fixtures. Many lumber and panel mills have been curtailed, shut down and even dismantled or turned into other businesses. An increase in new residential construction will help the remaining lumber producers, such as Georgia Pacific, RY Timber, and West Fraser.

Construction workers will need to purchase new vans and trucks. Most of the building material suppliers have closed, and the remaining ones have scaled down significantly. The few building material suppliers that are left will have to buy new equipment and hire new workers. Real estate agents that have been idled during the housing downturn will once again help clients buy homes. Community and regional and banks should benefit from increased loan demand, once they decide that it is safe to lend again. As employment increases, fewer homes will be foreclosed, and the inventory of foreclosures should begin to decline.

As new construction increases, employment in all of these areas will increase. As employment increases, there will be increased demand for housing as new household creation resumes its pre-2007 “normal” rate of 850,000. Consumer confidence and consumer spending will increase as a result of job creation. At some point, the increase in new household formation and new home construction reach the “tipping point”, and begin to increase at an increasing rate. It really is an intricate, far-reaching puzzle, but there is no question that new residential construction will become a self-fueling growth engine again.