– November 19, 2019
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Housing starts and permits increased in October as total starts rose by 3.8 percent and permits for future construction rose 5.0 percent. Total housing starts increased to a 1.314 million annual rate from a 1.266 million pace in September. The dominant single-family segment, which accounts for about three-fourths of new home construction, rose 2.0 percent for the month to a rate of 936,000 units, marking the fifth gain in a row (see chart). From a year ago, total starts are up 8.5 percent while single-family starts are up 8.2 percent

Starts of multifamily structures with five or more units jumped 6.8 percent to 362,000, leaving activity well within the 300,000 to 450,000 range that multifamily starts have been in for much of the last two economic expansions (see chart). From a year ago, multifamily starts are up 10.7 percent.

Among the four regions in the report, total starts rose in three as the West rose 17.6 percent, the Midwest gained 8.7 percent, and the South inched up 0.7 percent. The Northeast saw a 21.9 percent drop for the month. For the single-family segment, starts followed a similar pattern with gains of 9.3 percent, 0.8 percent, and 3.2 percent for the West, Midwest, and South, respectively while the Northeast posted a 32.8 percent plunge.

For housing permits, total permits rose 5.0 percent to 1.461 million from 1.391 million in September. Single-family permits rose 3.2 percent to 909,000 in October, the sixth monthly gain in a row (see chart). Within the multifamily segment, permits for two- to four-family units surged 38.2 percent and permits for five or more units increased 6.1 percent to 505,000 (see chart). Permits for single-family structures are up 7.4 percent from a year ago while permits for two- to four-family structures are up 20.5 percent and permits for structures with five or more units are up 27.5 percent over the past year.

Overall, single-family housing activity has posted a solid rebound over the last six months following a period of weakness from early 2018 through early 2019. The recent drop in mortgage rates may be providing a bit of a tailwind, but there is little evidence to suggest a significant, sustained acceleration in single-family housing activity in coming months and quarters. Activity levels in the single-family segment remain at or below the typical levels sustained in prior expansions over the past 35 years (see chart).

Multifamily housing remains generally robust, sustaining activity at levels consistent with the prior two economic expansions. However, given the high level, it’s unlikely that it will go much higher. Therefore, total residential investment is unlikely to be a significant and sustained source of growth for the economy.

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Robert Hughes

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Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.
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