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Housing Starts and Permits ‘just-right’ Zone
John McManus / BIG BUILDER / September 18, 2013
Census Bureau data on housing starts and new residential building permits hit the wires this morning, and you don’t get too far into any expert’s explanation of the fresh crop of data before the term “mixed signals” surfaces. Offsetting positives vs. negatives; stressors vs. catalysts; headwinds vs. tailwinds; fundamentals vs. technicals; buzz vs. the trenches are a fact of home building and development’s life.
* Here Calculated Risk’s Bill McBride charts up the latest release in his inimitable way:
His kicker line is this:
“This was below expectations of 915 thousand starts in August. I’ll have more later …”
Hanley Wood chief economist Jonathan Smoke’s perspective has three primary touch points:
1. Permit level is in line with economists expectations, down slightly vs. July (which was revised up) most (or all) of the decline was in multifamily, because single-family … highest we’ve seen since 2008
2. Overall, this data release is consistent with the theme of not expecti ng housing to show break-away gains. We’re in what Smoke calls the “just-right zone,” which is a positive considering new-home builders are “riding on top of pretty significant price gains,” it’s pretty much where it should be vis a vis demand trends, home builders’ land positions, and materials and labor capacity constraints
3. The data supports Smoke’s observation that we’re not seeing any solid evidence that mortgage rates are causing any sort of widespread retreat.
On the starts front, Metrostudy’s Brad Hunter has this first-blush take, which is that this data set is experiencing a pause period, as part of an upward march:
1. Total starts were up an insignificant %, thanks to multifamily volatility, and within which there are huge swings in each segment.
2. Single-family starts are up 7%, but that’s Plus/minus 13% on the margin of error, so it’s a guess as to whether they’re up or down from the Census Bureau data set.
3. Based on Metrostudy research, Hunter says, “our numbers from the field would indicate that the figure is quite decidedly upward. The pause in orders that we’re hearing about has to do with builders being too ambitious with their price increases. They’re likely going to moderate rate of home price increases to find the right balance of price and pace.
4. The underlying trends are supportive: household formations are gathering momentum. The past low of 500,000 household formations is now history, and we’re up at about 1 million, which is still in the process of firming up and increasing, which will bolster housing demand.
5. So, after slower sales July/August, with orders down among some of the reporting home builders, they’ll back off on their rates of increase, and starts will resume their upward march.
As McBride is won’t to say. More later. We’ll have an update and conclusions that bake in the Fed message here in this post later today.