It's probably more than the weather

Builder Sentiment
In this Nov.3, 2011 photo, Jim Weiler, of Jim Weiler Construction, sets a roof truss on a home under construction in LaPorte, Ind. Rising interest from would-be buyers is leaving U.S. homebuilders less pessimistic about the housing market. But tighter lending standards are still keeping many potential buyers from purchasing new homes. (AP Photo/Michigan City News Dispatch, Bob Wellinski)

Many economists believe that Thursday’s favorable Census Bureau report on housing starts, permits and construction for January signals the long-awaited recovery in the new home market.

Coming off the worst year since 1946, the month-to-month increase of 1.5 percent from December to an annual rate of 699,000 was seen as a continuation of better numbers in the second half of 2011 from the first.

Yet the last few months of 2010 also were better than 2009, but could not be sustained as the economy softened enough in the first few months of 2011 to create fears of another recession.

The probability of recession is now down to one-in-four, according to economist Nigel Gault in Thursday’s IHS Global Insight webcast on projections for 2012.

Economists suggest any construction data in January be considered in light of the mild weather — the month was the fourth-warmest since 1895 — and IHS Global Insight economist Patrick Newport notes that “builders don’t like building in mud.”

Yet, as most economists are saying, the indicators they follow to gain a sense of future growth are positive, especially job creation and a cheery improving picture in the small-business sector, where consumer spending and hiring are typically centered.

Remember, however, that residential construction in January and recent months is being driven by multifamily. Credit remains tight for both mortgages and single-family construction loans and potential buyers worry about further home price declines. The rental market needs to be fed, and it is eating up a lot of building activity.

Permits are the more-watched indicators of future construction, however, and they are consistently rising, 1 percent higher in January than December.

The trend is clearly positive, Newport said.