US – Behind the Numbers: Housing Starts Ease

Construction of new homes slowed slightly in July, while builders ramped up work on apartments, according to numbers by the Commerce Department, an indication that the rental housing market remains strong.

The numbers come on the heels of news that home-builder confidence is rising. The National Association of Home Builders’ confidence index rose two points in August to 37 out of 100, indicating that more builders feel assured that the market is stabilizing.

The slight slowdown in building activity mostly comes from the single-family home building sector. Starts on single-family homes fell 6.5% from June. For most of 2012, single-family starts have been hovering around a pace of 500,000 a year, with a slight bump in May and June, in the midst of the spring selling season. Single-family starts also typically rise in the late spring and early summer as families sign contracts for newly built homes in order to have them built in time for the new school year.

Multifamily starts grew both on a monthly and a yearly basis as apartment landlords respond to increasing demand from renters. Part of this has to do with turmoil in the for-sale housing market: With mortgage credit tight, prices stagnant in many markets, and foreclosures still a looming problem, many are finding it easier to rent than to buy.

Still, new housing is undoubtedly improving in 2012 from the depths of the last few years, and market watchers point to building permit numbers as a sign that the coming months will show continued good news. Permits rose 6.8% overall last month, compared with June, and 29.5% compared with July 2011.

Permits, of course, don’t mean that the housing units authorized will actually be built, but July’s number is the highest level of permits since August 2008.

Here’s what analysts and economists were saying about Thursday’s numbers:

Michael Rehaut, builder analyst, J.P. Morgan Chase: “While single-family starts, which are more related to the ownership market and the home builders, fell 6.5%, single-family permits rose 4.5%; hence we expect August total and single-family starts to demonstrate a solid rebound from this month. As a result, we maintain our belief that housing demand continues to improve at a moderate pace, while additionally, we believe our home building universe should continue to gain share, particularly over the next 2-3 years, given their stronger capital positions and the more limited financing available to smaller private builders.”

Michael Vitner and Anika R. Khan, senior economists, Wells Fargo Securities: “The drop was entirely in single-family units, which fell 6.5 percent in July, following four consecutive monthly increases. This pullback seems to be a little suspicious and it is plausible we could see some of this decline revised away…The multifamily sector remains a bright spot for new construction and continues to benefit from favorable demographics. Traditional renters in the 20-to-29-year-age range are continuing to drive apartment demand. Moreover, many previous homeowners who lost their home due to either foreclosure or short sale have also turned to the apartment market. With supply constrained, there is somewhat of an apartment builder frenzy. Many of these projects won’t hit the market for about one to two years during which time apartment vacancy rates should continue to fall further.”

Paul Diggle, property economist, Capital Economics: “The likelihood is that housing starts will rise strongly next month. All in all, despite the slight fall, this latest set of results does little to dissuade us that the underlying trend in housing starts is upwards. Indeed, based on the strength of the leading indicators, the recovery in home building could soon accelerate.”

Source: Wall Street Journal


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