Housing Starts Feel Effects of Hurricanes

Residual effect from summer hurricanes–Harvey, Irma, Maria and even Nate-took a toll on housing starts, which by nearly 5 percent in September, HUD and the Census Bureau reported yesterday.

The report said privately owned housing starts in September fell to a seasonally adjusted annual rate of 1.127 million, 4.7 percent lower than the revised August estimate (1.183 million) but 6.1 percent higher than a year ago (1.062 million). Single-family housing starts fell by 4.6 percent to 829,000; The rate for buildings with five units or more fell to 286,000 in September, a 6.2 percent drop from August (305,000) but a nearly 8 percent improvement from a year ago.

Regionally, only the West saw an increase in housing starts, improving by 15.7 percent to 347,000 units in September from 300,000 in August and jumping by nearly 25 percent from a year ago. In the South, starts fell by 9.3 percent in September to 527,000 units from 581,000 in August and fell by 2.2 percent from a year ago. In the Midwest, starts fell by 20.2 percent to 154,000 units in September from 193,000 in August but improved by 2.7 percent from a year ago. In the Northeast, starts fell by 9.2 percent in September to 99,000 units from 109,000 in August but improved by 4.2 percent from a year ago.

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., said housing starts declined much further than expected, as missing activity in the hurricane-battered South loomed large. He said storm-induced volatility is likely to continue.

“September’s drop in starts underscores the importance of Florida and Houston,” Vitner said. “Seasonal factors are unusually large in September…While repairs on damaged homes are not counted as starts, they may impact starts by worsening labor shortages and driving materials prices higher. Some projects may simply be delayed.”

Mark Fleming, chief economist with First American Financial Services, Santa Ana, Calif., agreed. “The decline in residential construction jobs and increase in specialty trade contractors highlights the strong demand, particularly in Texas, for construction workers to renovate and rehabilitate hurricane impacted houses,” he said. “The challenge of finding skilled labor to build new homes is now being exacerbated by the demand for that same skilled labor to renovate damaged homes.”

Fleming said this months’ news of renovation demand competing for labor resources followed by today’s announcement of a decline in housing starts and permits indicates “there are headwinds to increasing the pace of new home construction that is necessary to alleviate the supply shortages in today’s housing market.”

Ralph McLaughlin, chief economist with Trulia, San Francisco, sounded an optimistic tone despite the disappointing news. “Inventory-constrained homebuyers should fear not: most of the pullback in starts this year has been in the multifamily sector, where economists expected an eventual slowdown given their relatively high share over the past few years as well as softening rents,” he said. “Looking ahead, the future of new housing starts looks solid. New single-family housing permits–which lead starts–increased in September and are on pace to finish the year 5% higher than 2016. Frustrated homebuyers should rest assured that the pipeline of new single-family inventory remains robust.”

The report said privately owned housing units authorized by building permits in September fell to a seasonally adjusted annual rate of 1.215 million, 4.5 percent the revised August rate (1.272 million) and 4.3 percent lower than a year ago (1.270 million). Single-family authorizations in September fell by 2.4 percent to 819,000; authorizations of units in buildings with five units or more fell to 360,000, down by 17.4 percent from August (436,000).

Privately owned housing completions in September rose to a seasonally adjusted annual rate of 1.109 million, 1.1 percent above the revised August estimate (1.097 million) and 10.3 percent higher than a year ago (1.005 million). Single-family housing completions in September rose by 4.6 percent to 781,000; the September rate for units in buildings with five units or more fell to 322,000 units, a 7.2 percent drop from August but a nearly 18 percent improvement from a year ago.

“Permits are now running well above starts, implying we will see a rebound in coming months,” Vitner said.