Nothing Wrong With Housing Starts Today

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The Census Bureau report released today shows that housing starts missed their estimates for last month, coming in at 1,173,00.  Numbers from the previous months were revised lower. Even though the headline numbers missed estimates, the housing starts and permits story has stayed the same for this entire cycle: slow and steady growth. These numbers should also be taken in the context of higher labor cost, higher lumber prices and higher mortgage rates this year.

From Census:
https://www.census.gov/construction/nrc/pdf/newresconst.pdf

July Census Housing Starts

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Building Permits:

Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 1,273,000. This is 2.2 percent (±1.2 percent) below the revised May rate of 1,301,000 and is 3.0 percent (±1.1 percent) below the June 2017 rate of 1,312,000. Single-family authorizations in June were at a rate of 850,000; this is 0.8 percent (±1.5 percent)* above the revised May figure of 843,000. Authorizations of units in buildings with five units or more were at a rate of 387,000 in June.

Housing Starts:

Privately-owned housing starts in June were at a seasonally adjusted annual rate of 1,173,000. This is 12.3 percent (±8.3 percent) below the revised May estimate of 1,337,000 and is 4.2 percent (±10.2 percent)* below the June 2017 rate of 1,225,000. Single-family housing starts in June were at a rate of 858,000; this is 9.1 percent (±8.8 percent) below the revised May figure of 944,000. The June rate for units in buildings with five units or more was 304,000.

This report showed a decline in both single family and two-unit construction but I would caution against reading too much into this.   Until we see at least 4-6 months straight declining numbers we cannot assume a downward trend. Housing Starts data like new home sales data can be very volatile, month to month. If both these metrics show a solid comeback in next month’s report we will need to take that with a grain of salt as well. Slow and steady is the name of the game with housing starts. Two-unit construction continues to fall short of 500K units as is shown in the chart below from the great Bill McBride

From Calculated Risk
https://www.calculatedriskblog.com/2018/07/housing-starts-decreased-to-1173.html
StartsShortJune2018

In order for total housing starts to grow faster we will need more growth in single family starts.  For acceleration in single family starts we need more new home sales volumes. Today, new home sales are under 700K and I believe that is where they should be. I don’t subscribe to thesis that new home sales are so strong that they warrant a boom in housing construction. The modest sales need to be considered in the context of the current economy. We are in the longest job expansion ever in U.S. history, soon to be the longest economic expansion ever in U.S. history with mortgage rates below 5% since early 2011.

From Doug Short:
https://www.advisorperspectives.com/dshort/updates/2018/06/25/new-home-sales-up-6-7-in-may-better-than-expected
July New home sales ADJ POP

In this report, single family starts were basically flat year over year ( Down 0.2%) while multifamily starts were down 15.3% year over year. Still, year to date total starts are up 7.8%.

The number of construction job openings has been heading lower since the peak last year, and was flat in the most recent job openings report as a % of workers.  Total employment for construction is roughly 503,000 jobs away from what it was during the peak of the housing bubble years.

From BLS: 
https://www.bls.gov/charts/job-openings-and-labor-turnover/unemp-per-job-opening.htm#

JULY JOLTS Construction

From Fred: 
https://fred.stlouisfed.org/series/USCONS
July Construction workers

While this isn’t the best housing starts report, keep in mind that the trend matters more than any one report, either positive and negative. The housing story remains the same for years now; slow and steady growth for new home sales and housing starts.

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami