Washington: A government shutdown-delayed report released by the Commerce Department on Tuesday showed a much steeper than expected drop in U.S. housing starts in the month of December.
The report said housing starts plunged by 11.2 percent to an annual rate of 1.078 million in December from the revised November estimate of 1.214 million.
Economists had expected housing starts to dip by 0.5 percent to a rate of 1.250 million from the 1.256 million originally reported for the previous month.
With the much bigger than expected decrease, housing starts plummeted to their lowest annual rate since hitting 1.064 million in September of 2016.
Single-family housing starts tumbled by 6.7 percent to a rate of 758,000, while multi-family housing starts nosedived by 20.4 percent to a rate of 320,000.
Meanwhile, the Commerce Department said building permits rose by 0.3 percent to a rate 1.326 million in December from the revised November rate of 1.322 million.
Building permits, an indicator of future housing demand, had been expected to tumble by 2.9 percent to a rate of 1.290 million from the 1.328 million originally reported for the previous month.
The unexpected uptick in building permits came as multi-family permits surged up by 4.9 percent to a rate of 497,000, more than offsetting a 2.2 percent drop in single-family permits to a rate of 829,000.
Last Tuesday, the National Association of Home Builders released a separate report showing a significant increase in U.S. homebuilder confidence in the month of February.
The report said the NAHB/Wells Fargo Housing Market Index climbed to 62 in February after rising to 58 in January. Economists had expected the index to inch up to 59.
With the increase, the index continued to recover after hitting a more than three-year low of 56 in December.
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.