Strong Forward Looking Indicators in New Construction

I have been forecasting the recovery in the housing market for quite some time; analyzing early indicators helped many of my clients get ahead of the curve.

Once again, my forecast has been confirmed by an additional independent source, housingviews.com, the blog published by the S&P Dow Jones Indices. I believe, in addition to the resale housing market, new construction is also showing strong signs of recovery, both locally and nationally.

According to the National Association of Home Builders (NAHB) in the January reports released recently, single family housing starts are up 0.8 percent from December and 20 percent year-over-year. In the Northeast, there is a 35 percent decrease from December to January, which is not a surprise due to the increase in snowfall this year. However, year-over-year, the number remains flat and this consistency is equal to strength.

A forward-looking indicator analyzed by the NAHB, building permits, shows even more significant gains. Nationally, there is a 35 percent increase in the number of permits applied for year-over-year. In the Northeast, that number jumps to a 40 percent increase year-over-year.

While I am encouraged by the number of new construction projects started, I see the double-digit jump in permits as a much stronger indication of the overall health of this sector. With so much seasonal uncertainty in the Northeast, I like to analyze at forward looking indicators such as building permits rather than lagging indicators such as housing starts.

I believe new construction to be one of the biggest, if not the biggest influence on pricing. As reported in the 2012 Year in Review issued by The Attias Group Real Estate, 30 percent of the towns surveyed had significant increases in median home values, including Concord which had an 11 percent increase from 2011 to 2012. Of the remaining towns, 41 percent had decreases of 5 percent or less. Middlesex County as a whole had an increase of 1.1 percent from 2011 to 2012.

With median prices on the rise, new construction permits making huge strides, and unemployment continuing to hold steady, believe we will see the strongest spring market going back 5 or 6 years.