Construction Indicators Slide
After posting unexpectedly high numbers in June, all three residential construction indicators lost ground in July, and one, housing starts, is now running below its year-ago rate. While the softening is primarily in the multi-family sector, starts have declined in four of the last five months and permits in three of the last four.
The U.S. Census Bureau and the Department of Housing and Urban Development said privately owned housing starts were at a seasonally adjusted annual rate of 1,155,000 units, a 4.8 percent decline from June’s estimate of 1,213,000, which was revised down from 1,215,000. July starts were down 5.6 percent from the 1,223,000-unit annual rate in July 2016.
Starts failed to meet even the lowest predictions of analysts polled by Econoday. Their estimates ranged from 1.174 million to 1.250 million with a consensus of 1.225 million.
Single family starts were at a rate of 856,000, down 0.5 percent from a month earlier but 10.9 percent higher than the same month in 2016. Multifamily starts plunged 17.1 percent to 287,000 units and are down 35.2 percent year-over-year.
The performance of permits was like that of housing starts, down 4.1 percent to a seasonally adjusted annual rate of 1,223,000 units. Permits however held on to an annual increase of 4.1 percent. The June permitting rate was revised higher, from 1,254,000 to 1,275,000.
Analysts had expected permits to decline, with a consensus estimate of 1.246 units. Here again the drop was outside the low end of the range of 1.230 to 1.270 million units.
Authorizations for single-family homes were at a seasonally adjusted rate of 811,000, unchanged from June and 13.0 percent higher on an annual basis. Multi-family permits were 12.1 percent lower than the previous month at 377,000. This was down 11.7 percent year-over-year.
Units Under Construction
Econoday came up with this overall assessment: “Putting all the pieces together: starts are down 5.6 year-on-year in weakness offset by permits which are up 4.1 percent. Permits are the forward looking indication in this report and today’s news, despite July weakness and general volatility in the data, is good. The housing sector, even with starts being soft, looks to be a contributor to the second-half economy.”
While it’s true that it takes a permit to begin construction, a permit does not guarantee construction will start anytime soon. At economic turns, they won’t.
Even assuming those permits turn into starts, the data still does not look to be a contributor to the second-half economy.
The number of permits and starts for multifamily explains what you need to know. 5-unit or more buildings will add more to construction spending numbers than 1-unit buildings. Permits and starts for multifamily structures plunged.
Mike “Mish” Shedlock