August Housing Starts Slow Due to Drop in Multi-Family

The US August home building data, released Thursday, were weaker than expected. However, the data represent the shift toward single-family homes and away from condos and apartments as buyers seek more space and larger homes since the COVID-19 quarantines.

The pace of housing starts fell by 5.1% to a 1.416 million annual rate, well below the 1.486 million pace expected. Looking closer though, single-family starts rose by 4.1%, while multi-family starts fell by 22.7%.

Building permits, which precede starts activity, fell by 0.9% to a 1.470 million pace, with single-family permits up 6.0% and multi-family permits down 14.2%. As a result, single-family starts are likely to rise further in September.

Homes under construction rose by 1.5% to a 1.211 million rate in August, but completions fell by 7.5% to a 1.233 million rate, suggesting that supply will continue to lag demand in the short term.

US Home Building Data
Source: US Census Bureau

There are some positive signs for home building going forward.

Homes damaged or destroyed by Hurricanes Laura and Sally over the last few weeks will need to be replaced, giving some lift to home building in that region over the coming months.

Released on Wednesday, the National Association of Home Builders sentiment index rose to 83 in September from 78 in August, with measures of both current and future activity up solidly. The NAHB noted that supply concerns, especially for lumber, could dampen the forward progress of home building over the next few months.

Additionally, the Mortgage Bankers Association’s weekly activity reading continues to show strong mortgage applications and record low mortgage rates.

In other data released Thursday, initial jobless claims fell by 33,000 to 860,000 in the September 12 employment survey week, well below the 1.104 million level in the August 15 employment survey week.

The four-week moving average declined by 61,000 to 912,000, the seventh straight decline. The weekly levels of claims prior to the seasonal adjustment factor switch continue to roll out of the four-week window. Once that process is complete, the weekly changes in the four-week average will settle down.

One additional factor this week was the Labor Day holiday, which shorted the processing period. Unadjusted claims fell by 75,974 in the week, while seasonal adjustment factors expected a smaller decline.

The impact of Hurricane Sally, which hit the Gulf Coast even harder this week than Hurricane Laura two weeks ago, should be seen in next week’s claims data.

Continuing claims fell by 916,000 to 12.628 million in the September 5 week after rising by 252,000 in the previous week.

The Philadelphia Fed index was also released Thursday morning, showing a third straight decline in the index to 15.0 in September from 17.2 in August.

While the headline index declined, there were gains in the readings for new orders, shipments and employment. In addition, the six-month outlook jumped to 56.6 from 38.8, with 66% of survey respondents looking for further improvement by year-end.

When combined with the Empire State index, which rebounded to 17.0 in September from 3.7 in August, the Northeast manufacturing sector appears to have expanded further in September. Other regional data will be released in the coming weeks.

Kevin Kastner

Julie Ros
Written by

Julie Ros

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