New Housing Starts Fell in August While Permits Rose

By Robert Hughes

The number of new housing units started in August fell 0.8 percent from the prior month, totaling 1.18 million at a seasonally-adjusted annual rate compared to 1.19 million in July. The decline was driven by a 5.8 percent drop in starts of multifamily structures with five of more units. After staging a robust recovery over the 2009 through 2015 period from the 2008 housing bust, new starts of multifamily structures have softened noticeably. The much-larger single-family housing segment posted a 1.6 percent rise in new starts in August, registering an 851,000 annual rate for the month compared to 838,000 in the prior month.

The opposite pattern occurred in the issuance of housing permits for future construction. Overall, permits rose 5.7 percent to 1.3 million from 1.23 million in July. The gain for the month was led by the multifamily sector where permits for structures with five or more units jumped 22.8 percent to 464,000 from 378,000 in the prior month. The single-family segment saw permits fall 1.5 percent to 800,000 from 812,000 in July.

For both the single family and multifamily segments, the trailing three-month average of permits issued tend to lead the three-month average number of new starts by about a month. For both the single-family and multi-family segments, the three-month average number of permits issued moved higher in August.

The Census Bureau also noted that Hurricane Harvey and Hurricane Irma appeared to have little impact on the August data. However, it is likely that the decline in activity immediately before and after will distort the September survey. Furthermore, subsequent months are likely to get a boost from rebuilding efforts.

For the economy overall, numerous crosscurrents are hitting housing. Strong consumer fundamentals including a robust labor market, relatively low mortgage rates, and positive consumer sentiment about current economic conditions provide positive support. However, the potential for higher interest rates, rising home prices amid a tight supply of homes for sale, and somewhat less optimism about future economic conditions may be restraining demand. In addition, younger potential home buyers saddled with heavy debt burdens from financing college educations may be slow to consider home purchases. These conflicting forces combined with the impacts from recent storms will make analysis of the housing market particularly challenging over the coming months and quarters.

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Robert Hughes

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.