Washington D.C., USA: U.S. homebuilding plunged 12 percent to a nine month low to 1.173 million in June and building permits, which signal future start activity, declined for a third straight month to 1.273 million data jointly released by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development showed Wednesday.
Economists consensus had forecast housing starts falling to a pace of 1.320 million units last month and permits rising to a rate of 1.330 million units.
Builders broke ground on far fewer homes in June, signaling more of the stop-start rhythm that’s characterized the uneven housing recovery. June’s pace of starts was 12.3% lower than a downwardly-revised May, and 3.0% lower than year-ago levels.
The percent drop was the biggest since November 2016. Data for May was revised down to show starts rising at a 1.337 million-unit rate instead of the previously reported 1.350 million-unit rate. Starts fell in all four regions last month.
Building permits dropped 2.2 percent to a rate of 1.273 million units, also the lowest level since September 2017.
Buffeted by higher input costs, builders are struggling to give buyers what they want – and many buyers, in turn, may be put off by long wait times for new construction. Sentiment among home builders is treading water, an industry group said. That’s a sign that the pace of construction isn’t likely to accelerate much.
Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 1,273,000. This is 2.2 percent (±1.2 percent) below the revised May rate of 1,301,000 and is 3.0 percent (±1.1 percent) below the June 2017 rate of 1,312,000. Single-family authorizations in June were at a rate of 850,000; this is 0.8 percent (±1.5 percent)* above the revised May figure of 843,000. Authorizations of units in buildings with five units or more were at a rate of 387,000 in June.
Privately-owned housing starts in June were at a seasonally adjusted annual rate of 1,173,000. This is 12.3 percent (±8.3 percent) below the revised May estimate of 1,337,000 and is 4.2 percent (±10.2 percent)* below the June 2017 rate of 1,225,000. Single-family housing starts in June were at a rate of 858,000; this is 9.1 percent (±8.8 percent) below the revised May figure of 944,000. The June rate for units in buildings with five units or more was 304,000.
Privately-owned housing completions in June were at a seasonally adjusted annual rate of 1,261,000. This is 0.0 percent (±11.3 percent)* below the revised May estimate of 1,261,000, but is 2.2 percent (±14.5 percent)* above the June 2017 rate of 1,234,000. Single-family housing completions in June were at a rate of 862,000; this is 2.3 percent (±8.4 percent)* below the revised May rate of 882,000. The June rate for units in buildings with five units or more was 393,000.
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.
Other Economy News – Fed Chair Powell Testifies
U.S assets got another leg up from Fed Chair Jerome Powell who again expressed optimism over the U.S’s economic growth and stable inflation, telling Congress yesterday that domestic data should keep the central bank on track to raise “gradually” short-term interest rates. However, as per usual, there was a disclaimer – it was too soon to say if trade disputes might interfere with his plans.
To date, the Fed has refrained from commenting on trade policy, saying it is outside of their remit, yet Powell did caution that “open economies have fared better than closed ones.”
Elsewhere, commodity prices continue their decent, dragged down mostly by crude prices, which are off another -1% on a surprise U.S. crude stockpile report, while the ‘big’ dollar is outperforming its G10 currency pairs, with many EM currency pairs trading atop their multi-year lows outright.
In fixed income, Treasury yields have backed up along with most European bonds. Global equities have had a mixed overnight session.
Other Economy News – Beige Book
Fed’s Beige Book Indicates Continued Economic Expansion. Two weeks ahead of the next monetary policy meeting, the Federal Reserve released its Beige Book economic report on Wednesday.
The Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts, said economic activity continued to expand across the U.S.
Ten of the twelve Fed districts reported moderate or modest growth, while the Dallas district reported strong growth due to strength in the energy sector and the St. Louis district described growth as slight.
The Fed noted manufacturers across the country expressed concern about tariffs, with many districts citing new trade policies for higher prices and supply disruptions.
Overall, prices increased at a modest to moderate pace on average, with several districts reporting upticks in inflation.
The Beige Book noted employment continued to rise at a modest to moderate pace in most districts. All districts reported that labor markets were tight and many said that the inability to find workers constrained growth, the Fed added.
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The central bank said contacts in several districts reported slow growth in existing home sales but were not overly concerned about rising interest rates.
The Fed is scheduled to hold a two-day meeting policy meeting on July 31st and August 1st, with the central bank widely expected to leave interest rates unchanged.
After raising rates twice this year to the current range of 1.75 to 2 percent, the Fed has signaled two more rate hikes before the end of the year.
Following testimony by Fed Chairman Jerome Powell on Tuesday, Andrew Hunter, U.S. Economist at Capital Economics, predicted the Fed would raise rates in September and December and twice more in early 2019.
Other Economy News – Crude Oil Inventories
Oil prices fall on rise in U.S stocks, gold lower. Oil prices again have come under renewed pressure after data revealed a rise in U.S crude inventories last week, defying markets expectations for a “big drop,” while concerns about weak demand again have resurfaced.
Brent crude oil is down -60c at +$71.56 a barrel – the benchmark hit a three-month low yesterday – while U.S light crude is down -50c at +$67.58, not far off Tuesday’s one-month low of $+67.03 per barrel.
Expect today’s price action to largely depend on what the EIA release comes in at. Yesterday’s API data showed an unexpected rise of more than +600K barrels in national crude inventories. For today, the market is forecasting a decline of -3.6M barrels in U.S crude stocks for the week through July 13 (10:30 am EDT).
Also putting pressure on energy prices for the past month is Saudi Arabia and other OPEC members agreeing to increased production, while investors have also begun to worry about the impact on global economic growth and energy demand of the escalating Sino-US trade dispute.
Ahead of the U.S open, gold prices slipped to a new 12-month low as the ‘big’ dollar firms after Fed Chairman Powell’s U.S economic outlook reinforced the markets views that the central bank is on track to “steadily” hike interest rates. Spot gold is down -0.2% at +$1,224.16 an ounce. U.S gold futures for August delivery are -0.2% lower at +$1,224.30 an ounce.