Housing Starts Offer Sliver of Good News, But Analysts Remain Skeptical

Amid generally discouraging housing market trends, yesterday’s new residential construction report from HUD and the Census Bureau offered a glimmer of good news. But analysts were not swayed.

HUD/Census reported privately owned housing starts in October rose by 1.5 percent, seasonally annually adjusted, to 1.228 million units from 1.210 in September, but down by nearly 3 percent from a year ago. Single‐family housing starts in October fell to 865,000; 1.8 percent lower than September (881,000). The October rate for units in buildings with five units or more rose to 343,000, up by 6.2 percent from September but down by 4.5 percent from a year ago.

Regionally, results were mixed. In the largest region, the South, starts rose by 4.7 percent to 596,000 units in October, seasonally adjusted, from 569,000 units in September and fell by 3.4 percent from a year ago. In the West, starts fell by 4.6 percent to 335,000 units in October from 351,000 in September but improved by 10.6 percent from a year ago. In the Midwest, starts jumped by nearly 33 percent to 210,000 units in October from 158,000 in September and improved by 5 percent from a year ago. However, in the Northeast, starts plunged by 34.1 percent to 87,000 units in October from 132,000 units in September and fell by 40 percent from a year ago.

Analysts were not encouraged. Joel Kan, Associate Vice President of Economic and Industry Forecasting with the Mortgage Bankers Association, noted the decrease in single-family starts.

“Single-family starts dropped for the second straight month in October to 865,000 units, the slowest pace in four months,” Kan said. Single-family starts in October decreased year-over-year, the largest drop since March 2015 and for only the second time since then.”

In addition to the struggles that homebuilders are facing in terms of labor shortages and input costs, Kan said the drop in single-family starts resulted in part from “lingering weakness following the storms that hit [the South] this summer. Overall, housing supply continues to lag overall demand.”

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., noted single-family starts appear to have topped out last November.

“Permits for single-family homes fell 0.6% in October and are running below starts, indicating that single-family starts are likely to continue to lose momentum in coming months,” Vitner said. “The weakness in the single-family market is being offset somewhat by continued strength in multi-family units. This past year was expected to see a shift in leadership in the housing market, as more renters opted to purchase a home. That shift has largely failed to materialize. While the homeownership rate has edged higher, the apartment market has caught its second wind. Many renters have opted to renew their existing leases because they feel they are priced out of the housing market. Apartment vacancy rates fell during the third quarter, despite an onslaught of new units this year, and rents have firmed.”

Mark Fleming, chief economist with First American Financial Corp., Irvine, Calif., was equally pessimistic. “Today’s Census Bureau report for October sends a negative message to the housing market,” he said. “Completions decreased 6.5 percent compared to October of last year, indicating that we are falling short of adding homes to the market in the short-term. Housing starts also decreased 2.9 percent in October compared with a year ago. Most notably, ground breaking for single-family homes fell 2.6 percent compared with last year. However, there was some modest help for home buyers as the inventory of homes under construction increased by 3.6 percent compared with a year ago, indicating additional new increases in the supply of homes are on the way.”

The report said privately owned housing units authorized by building permits in October fell to a seasonally adjusted annual rate of 1.263 million, down by 0.6 from September (1.270 million) and 6 percent from a year ago. Single‐family authorizations in October fell to 849,000; 0.6 percent September (854,000); authorizations of units in buildings with five units or more came in at 376,000 in October, unchanged from September and down by 17.2 percent from a year ago.

HUD/Census said privately owned housing completions in October fell to a seasonally adjusted annual rate of 1.111 million, down by 3.3 percent from September’s revised 1.249 million and 6.5 percent below a year ago. Single‐family housing completions in October fell to 832,000; 1.2 percent below September’s revised 842,000; the October rate for units in buildings with five units or more fell to 269,000 down by 10 percent from September (299,000) and down by nearly 30 percent from a year ago.