Housing starts continue to improve

February building permits and housing starts continue to paint a picture of an industry that is rebounding strongly from extremely depressed levels. The level of new starts is still depressed from an historical perspective, having only recovered to levels that were previously associated with recessions. But the turnaround for this industry is still in its early stages, and it is now contributing to overall growth, as is typical in all past recoveries. 

Starts in February exceeded expectations by a bit (917K vs. 915K), but prior months were adjusted upwards. Starts are now running at levels that are almost double what we saw at the 2009 lows. Since the housing recovery began gathering strength in the second quarter of 2011, starts are up over 65%. This is a huge and very significant change on the margin that is having ripple effects throughout the economy. Home Depot, for example, is up 130% since August 2011.

Building permits naturally lead starts by a few months, and they reached a new post-recession high of 946K in February. Since the low of 2011, permits are up over 75%. If the past is any guide, permits and starts could double from current levels over the next several years. As the chart below suggests, a recovery to that level could add as much as 3 percentage points to GDP (e.g., 1% per year for the next three years).