Home Permits Increase

The Commerce Department said Thursday that builders broke ground on a seasonally adjusted annual rate of 699,000 homes in January. That’s up 1.5 percent from December and reached the highest level since December 2008. Construction began work on 508,000 single-family homes last month and December single-family homes were revised up strongly to show builders started 513,000 homes – a 12 percent gain from November.

In a separate report, building permits, a gauge of future construction, rose 0.7 percent. The majority of those permits were for single-family homes. It can take 12 months for a builder to obtain a permit and construct a single-family home.

In a third report released last week, A measure of builder sentiment has risen for five straight months and is now at its highest level in nearly five years. Many builders are seeing more people express interest in buying a home, leading them to believe 2012 could be a turn-around year for the market. Mortgage rates have never been cheaper. And home sales started to rise at the end of last year.

Keep in mind that from a fundamental supply and demand standpoint, the new housing starts had to decrease to support clearing of the existing inventory. The opportunity on the purchase money side is in markets where it is cheaper to own than rent.  We’ll eventually see a return of the First Time Home Buyer to stimulate home demand for move up borrowers.

While these numbers show some improvement we must remind ourselves of the huge amount of “Shadow Inventory” held by the major banks in the country. “Shadow Inventory” are homes that are in default but have yet to be foreclosed upon by the lender. They are being allowed to maintain this “Shadow Inventory” by the federal government. Why you ask? Because if banks had to foreclose on every home in default many would go bankrupt and housing prices in many areas of the nation would plummet.

So don’t let the “Headline Numbers” fool you, always dig behind what’s being reported. Housing prices for the most part will remain subdued until all of the “Shadow Inventory” clears the system, and that could take several years.

I wouldn’t buy a new home unless you are going to be there a while and have no expectation of a big increase in value.

It’s an election year folks – keep that in mind.

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