Housing Starts Fall 2nd Straight Month

Housing starts unexpectedly fell for the second straight month, as multifamily starts and single-family starts faltered, HUD and the Census Bureau reported yesterday.  

The report said privately owned housing starts in August came in at a seasonally adjusted annual rate of 1.126 million, 3.0 percent below the revised July estimate (1.161 million) but 16.6 percent higher than a year ago (966,000). Single-family housing starts fell to 739,000, 3 percent below July’s revised 762,000. The August rate for units in buildings with five units or more fell to 381,000, 2.3 percent below July’s 390,000.  

Regionally, gains in the South could not overcome declines in other areas of the country. The South recorded a 7.1 percent increase in housing starts in August to 602,000 units, seasonally adjusted, from July’s 562,000 and improved by 26.2 percent from a year ago In the Northeast, starts fell off by nearly 34 percent to 108,000 units in August from July (163,000) but improved by 0.9 percent from a year ago. In the Midwest, starts fell by nearly 10 percent in August to 157,000 units from July’s 174,000 and fell by nearly 13 percent from a year ago. In the West, starts fell by 1.1 percent to 259,000 units in August from July’s 262,000 but improved by 28.2 percent from a year ago.  

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., said August’s dip, combined with the downward revision of July numbers, might look “ominous,” but noted other data support continued growth.  

“Single-family housing has been down in three of the past four months,” Vitner said. “However, single-family is still up almost 15 percent over the past year. There is some consternation about the housing recovery in the medium and long-run as young adults continue to favor apartment life over buying a home. With apartment effective rent continuing to climb, we suspect there will likely be a tipping point that will make homeownership the most viable option for more renters.”  

Vitner also noted the trend in purchase applications is favorable. “On a year-ago basis, purchase applications have posted double-digit gains since early April,” he said. “What is encouraging is that improvement has been across both conventional and government applications. In particular, FHA purchase applications are now up a solid 29.2 percent over the past year.”  

The report said privately owned housing units authorized by building permits in August rose to 1.170 million, seasonally adjusted, 3.5 percent higher than July’s revised 1.130 million and 12.5 percent higher than a year ago (1.040 million). Single-family authorizations rose by 2.8 percent to 699,000; multifamily authorizations improved to 440,000, up 4.3 percent from July.  

Privately owned housing completions in August fell by 6.1 percent to 935,000, seasonally adjusted, from July’s revised 996,000 but improved by 3.3 percent from a year ago (905,000). Single-family housing completions rose by 1.6 percent to 627,000; multifamily completions fell by nearly 19 percent to 283,000.  

Vitner said the drop in the volatile multifamily component could be “payback” for a nearly 40 percent surge in June incited by the pending expiration of a tax break for new apartment construction in New York City. “Although we are seeing some consistent declines in the multifamily sector, fundamentals in the sector still look favorable,” he said. “When striking out on their own, young adults typically seek the comfort of an apartment building with amenities. Renter-occupied units are where much of the gain in household formations is occurring. Household formations continue to rise on the back of firming labor market conditions and should continue to increase this year.”  

Vitner added that housing remains one of the “bright spots” of the U.S. economy, with residential investment now making a modest contribution to real GDP growth. “Prospective buyer traffic continues to gradually inch higher,” he said. “This is a trend we expect to continue.”