Single-family starts edge higher as permits suggest further growth

by Steve Randall19 Aug 2019

There was a slight improvement in housing starts in July according to the latest figures from the HUD and Commerce Department.

Total starts were down 4% from a downwardly revised June figure to a seasonally adjusted annual rate of 1.19 million units. This was due to a drop in the multifamily sector of 16.2% to 315,000 units while single-family starts were up 1.3% to 876,000.

The South was the only region to post a gain in July (3.7%) while starts fell in the Northeast (5.7%), the Midwest (7.9%), and the West (12.3%).

However, the overall trend is positive and in line with the expectations of the National Association of Home Builders.

“Permits bottomed out in April and single-family starts hit their low point in May, and now we are starting to see the gradual improvement in the market that we’ve been forecasting,” said NAHB Chief Economist Robert Dietz.

Permits rise

There was also an increase in permits issued in July with the multifamily sector showing the largest percentage increase.

Multifamily permits hit an annual pace of 498,000 after jumping 21.8% while single-family permits gained 1.8% to 838,000. Overall permits issued were up 8.4% to an annualized rate of 1.34 million units.

“Homebuilders are reluctant to break ground on new projects if they fear the economy may slump later. Likewise, consumers are hesitant to make a large investment if they fear losing their jobs,” said Odeta Kushi, deputy chief economist at First American.

Speaking about the wider economy and the inversion of the yield curve which has been concerning the financial markets, she added that it does not necessarily mean recession is imminent.

“Since the mid-1970's, the yield curve has inverted 36 times for at least one day, but there have only been five recessions,” she noted. “There are many factors to consider beyond the inversion of the yield curve when determining recession risk. Single-family housing starts have been a more reliable indicator, because they are a reflection of both homebuilder and consumer confidence.”

Ms. Kushi added that over the last 40 years, a year-over-year decline of 20% or more in single-family housing starts has preceded all but one of the five recessions; in 2001

  • While in recent months housing starts have slowed, July’s 1.9 percent year-over-year gain in single-family housing starts demonstrates homebuilders remain confident.”

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