Las Vegas analyst expects home permits to rise in near future

U.S. builders started work on slightly fewer homes in February. But they began laying the ground work for a turnaround later this year by requesting the most building permits in any month since October 2008.

The Commerce Department said Tuesday that builders broke ground on a seasonally adjusted annual rate of 698,000 homes last month. That’s down 1.1 percent from January’s revised level of 706,000, also the highest since October 2008.

Building permits, a gauge of future construction, jumped 5.1 percent last month, to 717,000. Two-thirds are for single-family homes critical to a housing recovery.

It can take up to 12 months for a builder to obtain a permit and construct a single-family home.

In Las Vegas, Dennis Smith of Home Builders Research counted 236 home building permits pulled in February, precisely the same number as February 2010.

Smith said he expects home permits to rise in the coming months as builders market new homes against foreclosures and short sales, which are generally not in good condition and can take months to close escrow.

"People are tired of competing with investors to buy a foreclosure or short sale," the housing analyst said. "You also have Realtors more inclined to take buyers to look at new homes because they get paid quicker and they don’t want to hassle with offer after offer."

The number of sales contracts signed at new-home subdivisions in Las Vegas has doubled to 0.6 a week from 0.3 a week earlier in the year, Smith said. It’s typical to see new-homes sales increase in the spring, but there are other reasons driving sales this year, he said.

Interest rates are at a 40-year low, the national economy is improving and price per square foot is the most affordable in 10 years or more, Smith said. Buyers are also attracted to new homes because they’re built to be more energy-efficient with the latest technology.

High Frequency Economics chief U.S. economist Ian Shepherdson said he expects further gains in coming months, based on a measure of builder confidence that has risen in five of the past six months.

"Housing will add to growth all year, and beyond," Shepherdson said.

The housing market still has a long way to go before full recovery. The current pace of construction is barely half the rate considered healthy, as are the number of permits being requested. Most analysts say it could be years before the industry returns to full health.

Construction of single-family homes, which makes up roughly 70 percent of housing starts, fell in February to 457,000 after rising for four straight months to an 18-month high.

A jump in volatile apartment construction offset the decline.

Builders are starting to see signs of progress. They are more confident after seeing more people express interest in buying homes. Mortgage rates are hovering near record lows below 4 percent. And home sales started to rise at the end of last year.

New homes represent 20 percent of the home market, but have an outsized impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, the National Association of Home Builders calculates.

After previous recessions, housing accounted for at least 15 percent of U.S. economic growth. Since the recession ended in June 2009, it has contributed 4 percent.

Sales have also fallen because previously occupied homes have become a better deal than new homes. The median price of a new home is about 30 percent higher than the median price for a resale. That’s nearly twice the markup typical in a healthy market.

Las Vegas Review-Journal writer Hubble Smith contributed to this report.