This morning’s new home starts report looks, on the surface, like bad news. March starts were down 5.8% from February and at the lowest level since October 2011. Clearly the construction industry is still hungover from the bubble: March starts of 654,000 were a lot closer to the lowest point of the recession (478,000) than to normal construction levels (1.5 million).

But are we falling back into a new housing slump? No. Construction starts are volatile, especially multifamily starts, and the March drop was due entirely to multifamily bouncing back down. Looking beyond the monthly volatility, the recovery signs are:

  1. Starts are up 10.3% in March versus a year ago.
  2. The mild winter may have pulled starts forward a couple months, hurting March numbers. Let’s compare the whole winter season to the previous season. Looking across the whole winter (Dec-Mar) versus the previous four months (Aug-Nov), starts are up 7.1% (all seasonally adjusted).
  3. Building permits – a leading indicator of starts – were up 4.5% in March versus February and 30.1% versus a year ago.

Construction still has a long way to go back to normal, and it is zigzagging rather than straight-lining. But the trend is clearly up.