Housing Starts Slow Stroll Continues

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The Census Bureau report released today shows that housing starts beat estimates, coming in at 1,282,000. Additionally, the previous month’s numbers were revised higher but permits came in light. Even though some people are disappointed with the housing starts data this year, the numbers look perfectly right to me because they show a slow climb as I expected. These numbers should also be taken in the context of higher labor cost, higher mortgage rates and now some increases in existing inventory, which provides a less expensive home compared to new home.

September Starts and Permits From Census: 
https://www.census.gov/construction/nrc/pdf/newresconst.pdf

Building Permits

Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,229,000. This is 5.7 percent (±1.6 percent) below the revised July rate of 1,303,000 and is 
5.5 percent (±1.6 percent) below the August 2017 rate of 1,300,000. Single-family authorizations in August were at a rate of 820,000; this is 6.1 percent (±1.7 percent) below the revised July figure of 873,000.

Authorizations of units in buildings with five units or more were at a rate of 370,000 in August.

Housing Starts

Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,282,000. This is 9.2 percent (±11.4 percent)* above the revised July estimate of 1,174,000 and is 9.4 percent (±9.4 percent) above the August 2017 rate of 1,172,000. Single-family housing starts in August were at a rate of 876,000; 
this is 1.9 percent (±9.7 percent)* above the revised July figure of 860,000. The August rate for units in buildings with five units or more was 392,000.

This report showed that the recent down turn in housing starts has stopped.  Until we see at least 4-6 months of declining year over year numbers, with negative new home sales, I wouldn’t get too concerned. Next year will be more interesting for housing starts if more cheaper existing inventory comes to the market. I believe this could even create a slower rise of housing starts in 2019. Housing starts data like new home sales data can be very volatile month to month, which is why revision trends are key. This recent report has positive revisions. However, this month’s data had a strong push by multifamily starts which can get really wild month to month.

From Calculated Risk:
https://www.calculatedriskblog.com/2018/09/housing-starts-increased-to-1282.html?
StartsShortAug2018

In order for total housing starts to grow, 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 trending around 646,000 and I believe that is where they should be. I don’t subscribe to idea 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, with mortgage rates below 5% since early 2011. Still for 2018, new home sales are beating my sales expectation.  The median sales price is cooling off and this is a plus for demand. New home sales are growing as builders include smaller homes to the mix.  It will be interesting if next year rising existing inventory impacts certain markets like coastal hot spots. These areas are seeing an increase in inventory year over year and declining sales, year over year. This is happening in California and especially in the Seattle marketplace.

From Doug Short: 
https://www.advisorperspectives.com/dshort/updates/2018/08/23/new-home-sales-down-1-7-in-july-worse-than-forecast

august-new-home-sales-adj-population

Single family starts are up 6.3% year to date which is a good print.  Total starts are up 6.9% year to date. Yes, total starts are still up year to date. This growth looks normal to me considering how new home sales have been trending in this cycle. The slow and steady housing start story can continue as long as new home sales grow.The number of construction job openings are at cycle highs with 273,000 construction jobs openings and over 7,200,000 construction workers.Total employment for construction is roughly 466,000 jobs away from what it was during the peak of the housing bubble when housing starts were over a 1,000,000 units more where we are at today.

From BLS:

https://www.bls.gov/charts/job-openings-and-labor-turnover/opening-industry.htm
September JOLTS CONSTRUCTION

From Fred: 
https://fred.stlouisfed.org/series/USCONS
September COnstruction 7259

While this hasn’t been the best few months for housing starts data, keep in mind that the trend matters more than any one report, either positive and negative. The housing story has remained the same for years now; slow and steady growth for new home sales and housing starts. Still, housing starts in any context are still low.

From Census:
https://www.census.gov/construction/nrc/index.html?CID=CBSM+EI

September 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