Don't Go for the Housing Report 'Head Fake'

Numbers jump because of a change in building codes in New York City.

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Although a government report on new residential construction may look optimistic, it's really just more depressing news.

The Commerce Department today reported that housing starts in June surged by more than 9 percent from May. Permits, meanwhile, increased even more so, rising nearly 12 percent from the previous month.

But don't break out the funnel cake just yet, as the report is in fact what economists and basketball analysts refer to as a "head fake."

From David Resler, chief economist at Nomura Securities:

The Census Bureau noted that most of this increase came from New York City where builders rushed to file permits (and start new buildings) ahead of the July 1 imposition of a tougher building code. Thus, builders had a strong incentive to seek building permits well ahead of their normal schedule. Starts of single family homes, which provide a more accurate picture of the national housing market, fell 5.3% to an annual rate of 643,000. Since the trough of the deep 1981-82 recession, only the single-family starts volume of January 1991 was lower than this latest reading. Single-family starts fell in all four regions, led by a 9.2% drop in the Northeast. A 3.5% drop in permits for single-family homes make the prospects for a revival of home-building this year look bleak, especially with mortgage rates near their highest levels since last October.