Building permits climb 11%

November 17, 2011: 9:34 AM ET

NEW YORK (CNNMoney) -- Permits for housing construction climbed in October, signaling an uptick in optimism among homebuilders.

The number of permits for future housing construction jumped to a seasonally adjusted annual rate of 653,000 last month, up 10.9% from the revised rate of 589,000 in September, the Commerce Department said.

That was much higher than expected, with economists surveyed by Briefing.com looking for a 603,000 permit rate.

But until builders actually start building, this big increase in permits may indicate that builders are hedging their bets and may not translate into an actual increase in construction, said Doug Roberts, chief investment strategist for Channel Capital Research.

"Getting a permit and actually beginning to build a house is the difference between getting engaged and getting married," said Roberts. "What you have is builders thinking the market might be coming back, so they're getting permits to make sure they are ready to build if it does."

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In fact, the physical construction of new homes ticked slightly lower during the month, the government report showed.

Housing starts, the number of new homes being built, edged down 0.3% to an annual rate of 628,000 units in October, the Commerce Department said. That's down from a revised 630,000 in September.

"Builders thought they were going to be able to get out there and get some houses done, but then they found that they didn't necessarily want to make the stone cold commitment and want to put anything in the ground," Roberts said. "The demand wasn't there, so they weren't willing to bet a serious amount of money."

But economists had expected a much lower annual rate of 604,000 units, according to consensus estimates from Briefing.com.

If the glut of foreclosures starts thinning and demand picks up, the jump in permits could translate into a rise in new construction in coming months.

"But that's a big 'if'," Roberts said.

Still, permits and construction have both increased significantly from a year ago. Housing starts are up 16.5% from the same month a year ago, and building permits are up 17.7%. To top of page


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