Housing starts tumble 9% as sturdy recovery remains elusive

Housing starts tumble 9% as sturdy recovery remains elusive

Published: Oct 19, 2016 10:16 a.m. ET

Builders ramped up construction of single-family homes, however

Fixes story to reflect the correct agency reporting the data.

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Single-family starts improved in September, but starts for apartments plunged.

Builders broke ground on the fewest new homes in a year and a half in September, another setback as the housing market struggles for sustainable momentum.

Housing starts ran at an annual 1.047 million pace, the Commerce Department said Wednesday. That was 9% lower than in August and 11.9% lower than a year ago. It was the slowest pace of starts since March 2015. Economists surveyed by MarketWatch had forecast a 1.18 million pace.

The stumble in starts was slightly offset by a surge in building permits, which foreshadows a stronger pace of construction in the future. Permits were at a 1.23 million pace in August, a 6.3% monthly gain and the highest since November.

And single-family housing starts jumped 8.1% to an annual 783,000 pace, the highest in seven months. As builders shift their focus to single-family construction away from apartments, it signals more confidence in the market for owner-occupied homes and generates more economic activity. The U.S. now has the most single-family homes under construction since October 2008.

Starts for buildings with five or more units plunged 39%.

Trulia Chief Economist Ralph McLaughlin, who smooths out the monthly volatility in the starts data by using a 12-month rolling total, wrote in a note Wednesday morning that starts are “up year-over-year, but the rate of increase is slowing.”

Like many housing analysts, McLaughlin is concerned that housing market inventory is too tight. “While housing starts continue to inch up to their pre-recession average, they’re only about 75% back to normal. Housing completions, which represent tangible new supply for homebuyers, is even lower at 67%. Though homebuilders continue their slow and steady charge, there is much room for growth headed into 2017.”

The Commerce Department’s figures are notoriously volatile and often revised heavily. August housing starts and permits, both initially reported as 1.14 million, were each revised up slightly to a 1.15 million rate. Some analysts suggested looking past the September numbers altogether.

“Nothing to see here, move along,” wrote Amherst Pierpont Securities Chief Economist Stephen Stanley wrote Wednesday. But Stanley also noted a continuing “dissonance” between anecdotal reports about the housing market and actual data.

Builder sentiment eased in October, an industry group reported Tuesday, but that was a step back from a ten-year high in September. Builders continue to complain about higher costs of labor and lots, even as demand for housing swells.

“Reports from Realtors suggest that the housing market is on fire in many parts of the country, with the biggest constraint on sales being the lack of attractive inventory on the market,” Stanley added.

“Likewise, builders are seeing solid demand for new homes, and their biggest complaint is an inability to find enough skilled job candidates to fill out their construction crews. It is a mystery that in an environment that sounds like it would be very positive for housing, activity fell in real terms at a nearly 8% annual clip in the second quarter and may have declined at close to a 6% pace in the third quarter.”

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