August Housing Starts (But Not Much Else) See Improvement

Housing starts rose for only the second time in six months in August, HUD and the Census Bureau reported yesterday.

The 9.2 percent jump in housing starts came amid adecline in housing permits and only a slight increase in housing completions, as home builders continued to struggle with labor shortages and rising materiel costs.

The report said privately owned housing starts in August came in at a seasonally adjusted annual rate of 1.281 million, 9.2 higher than July’s revised estimate (1.174 million) and 9.4 percent higher than a year ago. Single-family housing starts in August rose by 1.9 percent (876,000) from July’s revised 860,000; the August rate for units in buildings with five units or more jumped to 392,000, up by 27.3 percent from July (308,000) and up by 37.1 percent from a year ago.

Every region showed improvement or held steady in August. The largest region, the South, saw a 6.5 percent increase in starts, to 674,000, seasonally annually adjusted, in August from 633,000 in July; from a year ago, starts in the South rose by 15 percent. In the West, starts jumped by 19.1 percent to 318,000 in August from 267,000 in July and improved by nearly 3 percent from a year ago.

In the Midwest, starts rose by 9.1 percent in August to 191,000, seasonally annually adjusted, from 175,000 in July and improved by 12.4 percent from a year ago. Starts in the Northeast were unchanged in August at 99,000 units and fell by 7.5 percent from a year ago.

“The growth in housing starts is welcomed news after two consecutive monthly declines,” said Mark Fleming, chief economist with First American Financial Corp., Santa Ana, Calif. “Several long-term trends are currently boosting housing demand, particularly a growing economy, strong labor market, demographic tailwinds from millennials entering household formation age and baby boomers living longer and more independently than previous generations. The increase in residential construction jobs, which grew 6.5 percent between August 2017 and August 2018, underscore this rising demand and builder confidence, and indicate that further increases in housing construction may be on the way despite cost challenges and skilled labor shortages.”

However, Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., said while the gain was larger than consensus estimates, it “does not signal a significant improvement in home building. Most of the gain was in the volatile multifamily segment, and both multifamily and single-family starts remain below the pace seen earlier this year,” he said.

The report said privately owned housing units authorized by building permits in August fell to a seasonally adjusted annual rate of 1.229 million, 5.7 percent below the revised July rate of 1.303 million and 5.5 percent lower than a year ago. Single-family authorizations in August fell to 820,000, 6.1 percent lower than the revised July figure of 873,000. Authorizations of units in buildings with five units or more fell to 370,000 in August, down by 8 percent from July (402,000) and down by nearly 20 percent from a year ago.

Vitner said the drop in building permits “takes the shine off” the rebound in starts. “Permits are now running below starts, suggesting home building is losing momentum,” he said. “The drop in permits and continued sluggish pace of home building fly in the face of the still-strong [National Association of Home Builders’] survey. Shortages of lots and construction workers and higher material prices might be holding back some projects, particularly starter homes.”

The report also noted privately owned housing completions in August rose to seasonally adjusted annual rate of 1.213 million, 2.5 percent higher than the revised July estimate of 1.183 million and 11.2 percent higher than a year ago. Single-family housing completions in August rose to 923,000, 11.6 percent higher than the revised July rate of 827,000. The August rate for units in buildings with five units or more fell to 285,000, down by nearly 19 percent from July and down by more than 15 percent from a year ago.

“The number of homes under construction has also increased by 4.6 percent compared to a year ago, indicating a new supply of homes in the future,” Fleming noted. “This month saw an increase of 11.2 percent in the number of completed homes compared to August of last year, which is additional new net supply added to the housing stock. The continued year-over-year growth in completions means more homes on the market in the short-term, offering some immediate relief in alleviating housing supply shortages.”