U.S. Housing Starts 1.28M vs 1.24M Expected, Permits Slump

by Ike Obudulu Posted on September 19th, 2018

Washington D.C., U.S. new home construction rose more than expected to a three month high in August, while permits unexpectedly saw the biggest drop since February 2017, the Commerce Department data released on Wednesday show.

Residential starts rose 9.2% to a 1.28m annualized rate (vs 1.24M expected) after revised 1.17m pace in prior month.

Multifamily home starts jumped 29.3%; single-family added 1.9%

Permits, a proxy for future construction of all types of homes, slumped 5.7% to 1.23m rate, the slowest pace since May 2017 (est. 1.31m) after 1.3m pace.

The data show persistent crosswinds for housing. While starts recovered after two straight declines, homebuilding permits signaled weakness in coming months. The decline in authorizations was broad-based with the single-family segment dropping 6.1 percent, the most in seven years, and multifamily permits falling 4.9 percent for a fifth-consecutive decrease.

As a solid job market and lower taxes aid demand, rising property values and higher mortgage rates are hurdles for potential buyers. On the construction front, builders face higher costs, including for workers and for imported steel that’s subject to tariffs.

While housing starts have been slow to break out over the past year, economists expect the industry will keep expanding.

A gauge of homebuilders’ confidence was unchanged in September from the prior month, matching the lowest level in a year, a National Association of Home Builders/Wells Fargo report showed Tuesday.

Building Permits

Privately-owned housing units authorized by building permits in August were at a seasonally adjusted annual rate of 1,229,000. This is 5.7 percent (±1.6 percent) below the revised July rate of 1,303,000 and is 5.5 percent (±1.6 percent) below the August 2017 rate of 1,300,000. Single-family authorizations in August were at a rate of 820,000; this is 6.1 percent (±1.7 percent) below the revised July figure of 873,000. Authorizations of units in buildings with five units or more were at a rate of 370,000 in August.

Housing Starts

Privately-owned housing starts in August were at a seasonally adjusted annual rate of 1,282,000. This is 9.2 percent (±11.4 percent)* above the revised July estimate of 1,174,000 and is 9.4 percent (±9.4 percent) above the August 2017 rate of 1,172,000. Single-family housing starts in August were at a rate of 876,000; this is 1.9 percent (±9.7 percent)* above the revised July figure of 860,000. The August rate for units in buildings with five units or more was 392,000.

Housing Completions

Privately-owned housing completions in August were at a seasonally adjusted annual rate of 1,213,000. This is 2.5 percent (±9.7 percent)* above the revised July estimate of 1,183,000 and is 11.2 percent (±11.4 percent)* above the August 2017 rate of 1,091,000. Single-family housing completions in August were at a rate of 923,000; this is 11.6 percent (±12.1 percent)* above the revised July rate of 827,000. The August rate for units in buildings with five units or more was 285,000.

Why Markets Care About Building Permits

Building Permits (Also Called Residential Building Permits) measures annualized number of new residential building permits issued during the previous month. It is released monthly, about seventeen days after the month ends.

The purpose of the Building Permits Survey (BPS) is to provide national, state, and local statistics on the number and valuation of new privately-owned housing units authorized by building permits in the United States. The United States Code, Title 13, authorizes this survey and provides for voluntary responses.

The statistics from the Building Permits Survey are based on reports that are submitted by local building permit officials in response to a voluntary mail survey.

Building permits data are collected from individual permit offices, most of which are municipalities and local governments. From local area data, estimates are tabulated for counties, states, metropolitan areas, Census Divisions, Census Regions, and the United States. Data are also collected for Puerto Rico and U.S. territories, although these areas are excluded from the national estimates.

The Building Permits Survey covers all “permit-issuing places,” which are jurisdictions that issue building or zoning permits. Zoning permits are used only for areas that do not require building permits but require zoning permits. Areas for which no authorization is required to construct a new privately-owned housing unit are not included in the survey.

The list of jurisdictions from which permits data are collected is updated monthly to reflect ongoing changes in permit coverage reported to the Census Bureau by local governments. These updates are reflected in the data for individual permit-issuing places, but all other estimates include only areas that had permit coverage at the time the current universe was established. This provides data that can be compared over time without the need to account for changes in permit coverage.

While this is monthly data, it’s reported in an annualized format (monthly figure x12).

The usual effect is that ‘Actual’ greater than ‘Forecast’ is good for the dollar and vice versa.

Building Permits is an excellent gauge of future construction activity because obtaining a permit is among the first steps in constructing a new building.

Why Markets Care About Housing Starts

Housing Starts measures annualized number of new residential buildings that began construction during the previous month. It is released monthly, about seventeen days after the month ends.

The compilation of the housing starts series is a multistage process.

First, a monthly estimate of the number of housing units for which building permits have been issued in all permit-issuing places is obtained from the Census Bureau’s Building Permits Survey.

Second, for each permit selected from the permit-issuing places, an inquiry is made of the owner or the builder to determine in which month and year the unit(s) covered by the permit was (were) started. In case the units authorized by permits in a particular month are not started by the end of that month, follow-ups are made in successive months to find out when the units were actually started.

Ratios are calculated (by type of structure) of the number of units authorized by permits, based on the Building Permits Survey, to the number of units authorized by permits based on estimates generated from the  permit offices. These ratios are then applied to the appropriate estimate of the number of units started, based on the permit offices, in the corresponding months or groups of months to provide ratio adjusted estimates of the number of units started for each month or group of months.

The rates are calculated for single-family structures for each of the four Census Regions and for structures with two units or more for each of the four Regions.

Adjustments are made to account for those units started prior to permit authorization and for late reports. These adjustments are based on historical patterns of pre-permit starts and late data. No adjustment is made for units in permit areas built without a permit.

While this is monthly data, it’s reported in an annualized format (monthly figure x12). Housing Starts data is slightly overshadowed by Building Permits because they are highly correlated and a permit must be issued before a house can begin construction

The usual effect is that ‘Actual’ greater than ‘Forecast’ is good f or the dollar and vice versa.

Housing Starts is a leading indicator of economic health because building construction produces a wide reaching ripple effect. For example, jobs are created for the construction workers, subcontractors and inspectors are hired, and various construction services are purchased by the builder.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
Phone
Email

Leave a Reply