Housing construction down, housing permits are up

Kai Ryssdal Apr 17, 2012

Kai Ryssdal: The confusing housing news of the day — as if there were any other kind — comes courtesy of what seem to be a pair of mutually exclusive statistics that came out this morning. The number of housing permits issued last month — that is, permission to build — they were up. Versus construction actually begun — that was down.

We’ve called Susan Wachter. She teaches real estate, among other things, at Wharton. Welcome to the program.

Susan Wachter: Pleasure to be here.

Ryssdal: So as part of our neverending quest to understand the American housing market, help me make sense of the disparity here between actual construction and the number of permits being issued for construction.

Wachter: Permits is forward-looking, and the forward-looking view right now, consistent with other data out there, is that the market is improving — slowly, but it’s improving. Now, the starts is very much a up-and-down, especially in the multi-family side. And it turns out that the unexpected decline is entirely in the multi-family side.

Ryssdal: So that is apartment buildings?

Wachter: That’s correct: five units or more.

Ryssdal: Does this then make you hopeful? As a woman who studies this as part of her job, help the rest of us understand it.

Wachter: It’s consistent with continuing hope. It certainly reflects the optimism that permits up, there are people who are expecting to build. You know, construction’s a funny number here because we’ve got an inventory that’s too high, and we have potential more supply coming out there if there’s additional foreclosures. So do we actually need, want more construction? Not for housing market — we do want more construction for jobs.

Ryssdal: Right. Well that’s what I was going to ask you: Why is anybody out there building homes when we’ve got all this inventory out there?

Wachter: Well first of all, they’re building multi-family. And rentership is increasing; people are choosing to be renters.

Ryssdal: Do we have inventory where people want to live? In, you know, the coasts and the major cities?

Wachter: Not necessarily. That’s where we’re seeing not only house prices firming, but rents increasing. So we already have increases in rents where the jobs are, where people are moving to get those jobs.

Ryssdal: You know, you talk about health and multi-family, five units or more, but isn’t sort of the indicator of the real estate market the single-family home?

Wachter: Of course, single-family housing is what’s the most important indicator. So the fact that multi-family is on its feet — and in fact, rents are going up — isn’t where we should seek reassurance for the overall economy. We need to have not only signs of green chutes and people out there saying, yeah look likes a bottom is forming — we actually have to see that bottom before we’ll have a return of confidence.

Ryssdal: With the caveat that you are an academic and not an analyst, the neverending search for the bottom in this housing market — are we close? I mean, Jamie Dimon, the CEO of JPMorgan Chase said on Friday, yeah, we’re at the bottom.

Wachter: Well, far for me from contradicting Jamie Dimon, I think we’re at the bottom.

Ryssdal: Really?

Wachter: Yeah, I think we are. Obviously, we don’t know where interest rates are going to go, we don’t know whether unemployment is continuing to drop — those are, of course, key factors going forward.

Ryssdal: Susan Wachter, she’s a professor of real estate and finance at the Wharton School at the University of Pennsylvania. Thanks a lot for your time.

Wachter: My pleasure.

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