Several economic indicators point to a possible increase in home construction and the beginnings of a recovery in a portion of the housing market that has been hit extremely hard in the recent downturn, but Chicago developers may be holding back a little:
Building permits. Chicago’s building permit activity collapsed from 2006 to 2009 and remained flat along the bottom until recently. Through 2005 and 2006, Chicago averaged 122 single family houses and 913 multifamily units permitted per month. The corresponding figures for 2011 and the first six months of 2012 were 21 houses (a decrease of 82%) and 202 multifamily units (a decrease of 78%). In the last three months, single family building permits have averaged 31 per month. In eight of the past thirteen months, multifamily permits have exceeded 175 units, but in only one case (March) has it exceeded 400 units. The flurry of multifamily activity in late 2011 and early 2012 appears to have cooled off.
Housing starts. Not available at the local level, housing starts are a better indicator of home construction because they measure construction that has actually started (permits don’t necessarily result in completed homes). Nationwide, housing starts averaged 612,000 units per month in 2011 and 586,000 units per month in 2010. So far in 2012, starts average 727,000 per month, a 19% increase over 2011.
Homebuilder confidence. The NAHB Homebuilder Confidence index is a survey-based metric that measures the attitude of homebuilders. While less quantitative than starts and permits, the index nevertheless can be a bellwether of upcoming housing investment, as home builders are the ones making investment decisions. The survey asks whether conditions are good, fair, or poor; a reading of 50 or above means that more builders rate conditions “good” than “poor.” The index has increased sharply at the beginning of this year, rising from 22 in December to 39 in August.
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