November 18, 2020 Reading Time: 3 minutes

Housing starts and permits posted strong results in October as the single-family segment made gains across most of the country while multifamily housing activity was modestly weaker. Total housing starts rose to a 1.530 million annual rate from a 1.459 million pace in September, a 4.9 percent increase. The October gain is the fifth rise in the last six months since hitting an April low.

The dominant single-family segment, which accounts for more than three-fourths of new home construction, rose 6.4 percent for the month to a rate of 1.179 million (see first chart). Starts of multifamily structures with five or more units fell 3.2 percent to 334,000 (see first chart). From a year ago, total starts are up 14.2 percent with single-family starts up 29.4 percent and multifamily starts down 19.9 percent.

For housing permits, total permits were unchanged at 1.545 million in October. Total permits are 2.8 percent above the October 2019 level. Single-family permits were up 0.6 percent at 1.120 million, the highest rate since March 2007 while permits for two- to four-family units jumped 36.4 percent to 60,000 and permits for five or more units decreased 5.9 percent to 365,000. Overall, single-family starts and permits are showing persistent strength since the April low while multifamily starts and permits are essentially trending sideways or slightly lower (see first chart).

Among the regions in the report, total starts rose in three of the four regions. The Northeast fell 38.6 percent while the South, the largest region by volume, rose 12.9 percent, the West gained 4.2 percent and the Midwest rose 3.3 percent. For the single-family segment, starts in the Northeast declined by 17.9 percent while the South increased 6.7 percent, the West added 4.4 percent, and the Midwest had a 22.0 percent improvement.

For housing permits among the regions, total permits also rose in three of the four regions. The Northeast dropped 9.5 percent while the South increased 0.7 percent, the West rose 0.5 percent and the Midwest added 2.9 percent. For the single-family segment, permits for the Northeast were down 13.0 percent while the South gained 2.2 percent, the West rose 0.4 percent, and the Midwest inched up by 0.7 percent. Single-family housing permits for the South, West, and Midwest were all at the highest levels since the late 2000s. Single-family permits for the Northeast were still above the range occurring from 2013 through 2019 (see second chart).

The National Association of Home Builders’ Housing Market Index, a measure of homebuilder sentiment, rose to 90 in November, up from 85 in October (see third chart). All three components of the index had gains in the latest month. The current single-family sales index rose to 96 from 90 in the prior month, expected single-family sales over the next six months rose to 89 from 88, and the index for traffic of prospective buyers increased to 77 from 74 in October (see third chart). Both the overall Housing Market Index and the traffic of prospective buyers index are at all-time highs (see third chart).

Single-family home construction activity has recovered sharply since the April low as lockdown restrictions that impacted both construction workers and potential customers were eased. Mortgage rates remain near all-time lows, providing support for the recovery though lending standards have tightened amid the policy-induced economic malaise.

Housing is one of the areas that may be experiencing structural change. There appears to be sustained marginal demand for less dense suburban and rural housing as urban dwellers, primarily renters, seek alternative housing. This trend could be boosted if businesses implement permanent work from home policies, to make employees happy but also to cut down on high-cost commercial real estate, especially in high-density, high-cost cities.

Robert Hughes

Bob 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.

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