U.S. Housing Starts Match Expectations At 1.23M

by Ike Obudulu Posted on November 20th, 2018

Washington D.C., USA : U.S. new home construction picked up in October on a rebound in apartments and other multifamily housing, offering some hope that the market is stabilizing despite rising prices and borrowing costs. The report is released jointly by the Census Bureau and Department of Housing and Urban Development in Washington.

Residential starts increased 1.5 percent to an annualized rate of 1.23 million from the prior month’s upwardly revised 1.21 million, government figures showed Tuesday. That matched the median estimate of economists. Permits, an indication of future construction, fell 0.6 percent to a 1.26 million rate, also in line with projections.

The data suggest that builders are seeing steady demand from buyers amid a solid labor market and tax cuts that have boosted take-home pay. Those are cushioning the impact of mortgage rates at an eight-year high and home prices still outpacing wage gains. An easing in lumber prices from a record earlier this year may also be providing some relief to developers.

At the same time, the figures followed a report Monday showing the biggest drop in homebuilder sentiment since 2014, indicating developers are becoming less optimistic that future demand will withstand headwinds.
The increase in starts was concentrated in the more-volatile multifamily category, such as apartment buildings and condominiums, which rose 10.3 percent to an annual rate of 363,000. Groundbreaking on single-family homes fell 1.8 percent to 865,000.

Housing starts rose 4.7 percent in the South, the largest region, to an annualized pace of 596,000; they also increased to a five-month high in the Midwest while declining in the West. Starts fell to 87,000 in the Northeast, the lowest since May 2017.

The number of homes under construction rose to 1.14 million, the most since July 2007.

The data show a wide margin of error, with a 90 percent chance that the October housing-starts figure was between an 11.4 percent drop and a 14.4 percent gain.

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.

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