Housing Starts Jumped 12.3% in August as Builders Played Catch-Up

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Housing starts took a sizable jump in August, prompting optimism from the housing and mortgage industries that at least some relief is on the way for what has been a persistent inventory problem.

Building permits and completions were also up month-over-month.

Starts reached a seasonally adjusted annual rate of 1.364 million, an increase of 12.3% compared with a revised 1.215 million in July and up 6.6% compared with 1.279 million in August 2018, according to estimates from the U.S. Census Bureau and U.S. Department of Housing and Urban Development.

Starts of single‐family homes were at a rate of about 919,000, an increase of 4.4% compared with a revised 880,000 in July. Starts of multifamily homes (five units or more per building) were at a rate of 424,000, up a whopping 30.9% compared with about 324,000 in July.

Regionally, combined single and multifamily housing starts increased 4.4% in the South, but decreased 1.8% in Northeast, 5.6% in the Midwest and 11.3% in the West.

Building permits also took a significant jump, reaching an annual rate of 1.419 million, an increase of 7.7% compared with 1.317 million in July and an increase of 12% compared with 1.267 million in August 2018.

Permits for single-family homes were at a rate of about 866,000, an increase of 4.5% compared with about 829,000 in July. Permits for multifamily properties were at a rate of about 509,000 in August, an increase of 14.9% compared with 443,000 in July.

Regionally, permits increased 5.7% in the Northeast and 1.6% in the South but fell 6.9% in the Midwest and 5.6% in the West.

Housing completions were also up compared with a month earlier. They were at an annual rate of 1.294 million, an increase of 2.4% compared with 1.264 million the previous month and up 5% compared with a rate of 1.232 million a year earlier.

Completions of single‐family homes were at a rate of about 945,000, an increase of 3.7% compared with about 911,000 in July. Completions of multifamily dwellings were at a rate of 338,000, a decrease of 0.9% compared with about 341,000 in July.

Odeta Kushi, deputy chief economist for First American, says “further increases in housing construction may be on the way as well.”

“Residential construction jobs increased 3.9 percent between August 2018 and August 2019,” Kushi says in a statement. “More people at work in residential construction signals that housing construction is likely to increase in the months ahead, reinforcing reports that builder confidence increased in September, even in the face of cost challenges.”

Kushi notes that the total supply of existing homes for sale nationwide as a percentage of the occupied residential inventory, a metric known as inventory turnover, started the year at 1.7% and steadily increased to a level of 2% by July.

Although the increase is encouraging, “only 200 homes in every 10,000 are for sale,” she says.

“While an improvement, this is well below the historical average of about 250 in every 10,000,” she adds.

“The lack of existing homes for sale is supportive of new construction,” Kushi says. “The month-over-month surge in single-family housing starts to a pace of 919,000 is an improvement towards meeting this demand, but still falls short of the 1.2 million units that would be needed to meet the increased demand stemming from household formation.”

Greg Ugalde, chairman of the National Association of Home Builders (NAHB), says the report is “solid” and “in line with our latest survey on builder sentiment.”

“However, builders continue to wrestle with affordability concerns stemming from excessive regulations and other supply-side challenges,” Ugalde adds.

“Housing has been on an upswing in recent months as the pace of permits and starts has been rising since spring,” says Robert Dietz, chief economist for NAHB. “While these are positive developments, single-family starts are down 2.7 percent year-to-date as the catch up process continues.”

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