HOUSING RECOVERY IS STILL ON THE DRAFTING BOARD / THE WALL STREET JOURNAL

Housing Recovery Is Still on the Drafting Board

The sharp rebound in building permits, and the disappointing one in housing starts, underscores the difference between planning to build something and building it

By Justin Lahart


The number of permits authorizing residential construction rose at a faster pace than economists expected last month. / Photo: Jim Thompson/Zuma Press .


Planning on building something is one thing. Building it is another.

The Commerce Department on Wednesday reported that construction started on 4.3% more homes in May than a month earlier, adjusting for seasonal swings. That was a partial reversal of April’s 26.4% decline in housing starts, but nothing like the 22.3% jump economists expected to see.

The report showed that the number of permits authorizing residential construction rose a much sharper 14.4%, though, which was better than economists’ estimated gain of 10.8%.

The housing-starts figures seemed a bit out of step with what other housing data have been showing. On Tuesday, the National Association of Home Builders said that its measure of builder sentiment registered its largest jump ever this month.

Meanwhile, mortgage applications for home purchases have rebounded as people have taken up plans to buy homes again, helped along by the Federal Reserve’s efforts to lower borrowing costs in response to the Covid-19 crisis.

Perhaps the rebound in construction was merely a bit delayed in May and bigger jumps in housing starts will be coming soon, but there are two potential hurdles to that happening that investors should consider. The first is that the novel coronavirus crisis has made it harder to build a house.

Workers in many places are now required to take additional safety measures while on the job, which can slow things down. Moreover, the supply-chain problems and shipping delays that the pandemic has introduced can make some tools, materials and parts harder to come by.

The second is demand. There is good reason to be optimistic it will be picking up in the months ahead, and making anticipatory moves such as applying for building permits makes sense. But with the economy still on the ropes and the course of the pandemic uncertain, actually breaking ground on a new home is a big step. It takes nearly eight months to construct a single-family home. If ever there was a lot of uncertainty about what will occur in the next eight months, it is now.

In the housing boom and bust of the 2000s, home builders got a painful lesson in what can happen when optimism runs ahead of reality. It isn’t a mistake they are likely to repeat now.