The US Building Permits Index is a measure used to measure health and activity within the construction sector of the U.S. economy. It tracks the number of permits issued by local government authorities for new construction projects, including residential and commercial buildings, as well as renovations and additions to existing structures.
This indicator is an important economic indicator as it reflects the level of investment and confidence in the real estate and construction sectors. The high numbers of building permits indicate an increase in construction activity, which can have ripple effects throughout the economy, such as job creation, increased demand for building materials, and overall economic growth. Conversely, lower building permits may indicate a slowdown in construction activity, which could be a sign of economic weakness.
The US Building Permits Index is an important economic indicator that reflects the health of the construction sector in the US economy. When the number of building permits rises, it is a positive sign of increased economic activity and confidence in the US economy. Thus, investors may turn to the US dollar with more confidence, strengthening its value against other currencies in the Forex market. Investors expect stronger economic growth, higher interest rates, and potential returns on investments denominated in US dollars.
On the flip side, if there are declines in building permits, this is usually seen as a sign of a slowdown in economic activity, which could lead to a weakening of the US dollar against other currencies in the forex market.
It is important to note that these effects can vary depending on other factors affecting the Forex market at the time, such as other geopolitical and economic developments both domestically and internationally.
The impact of US building permits on the economy and the market
If the US building permit index is higher than expected, it usually indicates positive sentiment in the housing market. Building permits are legal permits issued by local governments that allow buildings to be built or renovated.
Here’s what it means in general:
· Economic growth: The increase in building permits indicates a growing demand for housing, which is often associated with economic growth. More permits mean more construction activities, leading to increased employment and investment opportunities and overall economic expansion.
· Consumer confidence: The rise in building permits can also reflect positive sentiment among consumers. People tend to invest in new homes or renovations when they feel financially secure and optimistic about the future.
· Housing Market Health: Building permits serve as a key indicator of the health of the housing market. It precedes actual construction activity, so the increase in permits suggests that more homes will be built in the future, which could lead to an easing of supply restrictions and support for housing prices..
· Investor reaction: Financial markets may react positively to higher-than-expected building permits, especially if they indicate broader economic strength. Construction, real estate and home improvement stocks may see an increase in demand as investors expect higher revenues and profits.
On the flip side, if the release of the US Building Permit Index is lower than expected, it usually indicates a slowdown or weakness in the housing market.
Building permits are a key indicator of future construction activity, so the decline suggests that fewer permits are being issued for new construction projects. This may be due to various factors such as low demand for housing, tightening credit conditions, or uncertainty in the economy.
Investors and analysts often interpret a lower-than-expected building permit index as a sign of potential economic weakness or a cold housing market.
Building Permits for March: Insights and Directions
In March, the total number of new building permits saw a modest decline of 4.3%, to settle at an annual rate of 1.46 million units. This represents a slight decline from February’s revised rate of 1,523,000 units, but remains significantly higher by 1.5% compared to March 2023, which recorded 1,437,000 units. Building permits consisting of five units or more averaged 433,000 units, while single-family permits decreased by 5.7% to 973,000 units. Multi-family permits followed suit, falling 1.2% to an annual pace of 485,000 units.
Analysis of regional data reveals mixed trends, with permits up 34.5% in the Northeast and 11.3% in the Midwest, slightly declining by 0.9% in the South, and marginally increasing by 1.0% in the West.
In terms of construction progress, the number of single-family homes under construction reached 689,000 in March, representing a decrease of 2.7% from the previous year. Meanwhile, the total number of apartments under construction reached 957,000, reflecting a decrease of 1.6% compared to the same period last year.
March saw a decline in home construction starts, partly due to unexpected interest rate hikes and persistent inflation. Construction companies continue to face high supply costs and stricter lending conditions, noted Carl Harris, president of the National Association of Home Builders (NAHB), who highlighted the multifaceted challenges facing construction companies.
Despite the decline in the start of construction of apartments, the flow of completed units to the market is rising, due to previous high construction levels. It is worth noting that the first quarter of 2024 witnessed a significant increase of 27.4% in the pace of completion of apartments compared to the same period in 2023. This increase in multi-family construction is expected to exert downward pressure on rental growth in the near term.
Housing starts increase and building permits drop in April
Housing starts increased by 5.7% month-on-month in April to 1.360 million versus 1.420 million projected and 1.287 million in March (revised from 1.321 million). The single-family housing start rate was 1.031 million, 0.4 percent lower than the revised March figure of 1.035 million.
Meanwhile, building permits fell 3.0% from a month earlier to 1.440 million versus the projected 1.480 million and the previous 1.485 million (revised from 1.467 million).The single-family mandate rate was 976,000, 0.8% lower than the revised March figure of 984,000.
Privately owned housing completions per month reached a seasonally adjusted annual rate of 1.623 million. This is 8.6% higher than the revised March estimate of 1.495 million and +14.6% from the April 2023 rate of 1.416 million.
The U.S. Census Bureau said single-family housing supplements averaged 1.092 million, 15.4 percent higher than the revised March rate of 946,000.
