Wednesday, March 21, 2012

Housing Starts Down, Housing Permits Up: What Does It All Mean?

February housing starts dropped 1.1% from January’s level, but permits for housing construction rose 5%, according to the Department of Commerce numbers. After earlier recessions in the U. S. economy, housing construction accounted for 15% or more of economic growth. Since this recession officially ended in June 2009, housing construction has accounted for only 4% of growth in the American economy.

In today’s market, new home sales are competing with deeply depressed prices for foreclosed and short sale homes, severely restricting the historical contribution of new housing construction to economic recovery. In a healthy economy, a new home typically sells for  15% premium over a comparable existing house. Today that premium has doubled to 30%.  According to the National Association of Home Builders, each new home creates three jobs for a year, and generates $90,000 in tax revenues to various government units. Without this stimulus, our economic growth has stagnated at alarmingly low rates.

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