New home starts dipped 5.4%, led by single family starts down 6.0%.
Total starts came in at 1.142 million (SAAR), well under the consensus estimate of 1.190 million, and beneath the entire Econoday Range of 1.170 million to 1.220 million.
Nonetheless the Econoday robot said the “details are not as weak as the headlines”. Let’s investigate the claim.
Highlights
The details are not as weak as the headlines as the new home market remains one of the positives for the economy. Housing starts and permits did fall in August, down a sharp 5.4 percent for starts to a lower-than-expected 1.142 million annualized rate and down 0.4 percent for permits to 1.139 million which is also lower than expected. But permit growth for single-family homes, which is a key indication on housing demand, rose a very solid 3.7 percent to a 737,000 rate which is about where permits were trending earlier in the year.
But the nearer term outlook is less positive as starts for single-family homes fell 6.0 percent to 722,000. Multi-family starts also show weakness, down 5.4 percent to 420,000 and with permits down 7.2 percent to 402,000. The permit dip pulls the year-on-year reading for multi-family homes deep into the negative column at minus 11.8 percent though starts for multi-family homes are still positive, at least for now at plus 4.7 percent. A positive in the report and reflecting the general strength in prior starts is a 0.9 percent rise in total homes under construction to a new cycle high at 1.038 million.
The strength for single-family permits, which in contrast to the once high-flying and lower cost multi-family category, is a solid plus for residential construction. New home sales data for August will be posted on Monday of next week.
Permits a Leading Indicator of What?
Housing starts are a leading indicator of future economic growth. Builders do not normally build on spec, so in general, a housing start represents a sale. With that comes cabinets, landscaping, appliances, moving expenses, shipping, and even food for all the builders and trades involved.
Permits are allegedly a leading indicator of a leading indicator. But unlike new home starts that typically have an associated contract, permits are bought on spec. They have to be. It takes a permit to build a home.
In reality, permits are simply an indicator of builder sentiment. Yes, it takes a permit to build a home, but it also takes a buyer to build a home. At turning points, builders will have a lot of money tied up in land, for homes that will not be built.
Housing Starts
Housing Starts Percent Change From Year Ago
Single Unit Housing Starts
Single Unit Housing Starts Percent Change From Year Ago
Mike “Mish” Shedlock
I’m wondering if a shift in builder (and presumably buyer) preferences is distorting the data.
Where I live, many new developments are mixed-use. That is, retail space at the ground level with condos, apartments, and office space, on the higher floors. When permits are pulled for these sorts of mixed use developments are they commercial, multi-family residential, or yet another permit type not counted in the “housing starts” numbers?
They’re building the same here. A lot of townhouses and condos mixed with retail, walking distance schools, etc… .
The thing is a new condo/townhouse costs considerably more than a 30 year old 4 bd. 3000 sq ft home on a 1/4 acre a mile away. Plus, the 30 year old homes are almost always remodeled with superior materials/appliances. I get wanting a new unit within walking distance to Chipotle, but you really have to be shortsighted to buy one. Some new developments take years to sell all the units.
The housing economy may be story book reading, take the fairy tale story about the three little pigs and the hungry wolf for example.
Weak housing starts and permits are as weak as they look. They’re even weaker here in Houston Texas. Lennar Homes, one of the largest builders in the area by volume, reported a 10 percent decline in Houston deliveries for the 3rd quarter. New orders dropped by 14 percent!
Even with higher prices, total dollar volume of new orders in Houston dropped by 10 percent (a little more than $19,000,000).
Also worth noting is that this weak starts and permits data is happening with lower YoY mortgage interest rates.
http://aaronlayman.com/2016/09/lennar-homes-sales-new-homes-houston-drop-10-higher-prices/
I’m not disagreeing with you and like your post, but, Houston depends on the oil industry, which is in a slump right now. So Houston probably isn’t a good proxy for the entire nation.
Currently I will agree with you Mish most homes being built are presold, depending on the size of the home. Starter homes in Arkansas are mostly spec homes. If you step into the mid range and higher end homes they are mostly presold. Where I live these home are basically dead and have been for some time. Many mid size and high end new homes sit on the markets for years. High end homeowners are lowering the price to try and move their homes.
Many builders no longer build and either have left the market or moved into remodeling homes now. Honestly remodeling homes is more lucrative anyway. Some builders that built large spec home simply turned in the keys to these homes as they have not moved in two or three years.
Mish. Lee Adler did a great break down of the season adj bs . when you remove it the single home starts where the 2nd worse ever if I read correctly at 13.5 pct. 2nd worse since the financial crash for August
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