Need To Know News

New residential houses were started at an annual rate of 895K in August, a 6.2% decline from the downwardly revised July number of 954K. This was well below analysts expectations of 928K starts in August and the lowest level for starts since January 1991.

As builders continued to retrench, permits for new residential housing totaled 854K, down 8.9% from July and the lowest level since Feb 1991. Single-family permits were 554K, down 5.1% from July and the lowest level in over 25 years.

New single-family homes were started at an annual rate of 630K in August, down 1.9% from July. Multi-family starts of buildings with more than 5-units took a bigger hit, declining almost 17%. On a regional basis overall starts declined at double-digit rates in the Northeast and Midwest, declined 7% in the South but showed an 11% increase in the West, as that area partially recovered from a large drop in starts in July. However all regions showed starts at levels that are 30-45% below year-earlier levels.

The Northeast was the weakest area for new permits, down 21% from July levels. Permits in the Midwest eked out a small increase but those in the South and West showed single-digit declines.

Housing completions fell almost 10% in August to an annual rate of 961K. That was the lowest number of homes completed in over 25 years. Housing units under construction fell 1% to 947K, its lowest level in a decade.

• August Housing Starts are expected to fall 1.6% to 950k following a 965k reading in July
• Building Permits are expected to fall 1% to 928k following a 937k reading prior

US Housing Starts are expected to decline further after an 11% decline in July netted out the 10% increase in June. Poor credit market conditions, meager market confidence and rising inventories of unsold homes are all likely to hamper the struggling housing market. The high level of inventories and resulting impact on home prices has greatly increased the risk in building a new home via lower potential margins.

Related data:

• MBA Mortgage Applications fell insignificantly in August
• The NAHB Housing Market Index grew to 18 in September from a reading of 18 in August
• Aggregate Construction Employment in the August Employment report increased 0.3%, but was still down 6.3% on a y-o-y basis
• Under Construction New Homes fell 1.6% to 955k in July, New Home Completions fell 8.7% in July to 1.035mln

• August Housing Starts are expected to fall 1.6% to 950k following a 965k reading in July
• Building Permits are expected to fall 1% to 928k following a 937k reading prior

US Housing Starts are expected to decline further after an 11% decline in July netted out the 10% increase in June. Poor credit market conditions, meager market confidence and rising inventories of unsold homes are all likely to hamper the struggling housing market. The high level of inventories and resulting impact on home prices has greatly increased the risk in building a new home via lower potential margins.

Related data:
• MBA Mortgage Applications fell insignificantly in August
• The NAHB Housing Market Index grew to 18 in September from a reading of 18 in August
• Aggregate Construction Employment in the August Employment report increased 0.3%, but was still down 6.3% on a y-o-y basis
• Under Construction New Homes fell 1.6% to 955k in July, New Home Completions fell 8.7% in July to 1.035mln

July Housing Starts at 965k, were down 11% from the upwardly revised June figure of 1.84mln (up 18K) but 5k over the consensus estimat of 960k. Year on Year, Starts are down 29.6%. Housing Starts are at the lowest level since March 1991.

July Building Permits, at 937k, a drop of 17% from the upwardly revised 1.138mln (up47k) but below the expected 970k level. Year on year, Permits are down 32.4%.

Single Family Starts, at 641k were 2.9% below the upwardly revised 660k recoreded in June. Single Family Permits were 584k, a 5.2% drop from the upwardly revised June figure of 616k (up 3k). Single Family Starts are at the lowest level since January 1991. Single Family Permits are at the lowest level since Aug of 1982 and Completions are at the lowest level since March 1983.

Housing Completions come in at 1.035mln, a drop of 8.7% on a month on month basis and 31.7% below the July 2007 level.

Total U.S. housing units under construction was 955k in July; 491k Single Family units were under construction, the lowest level since Sept 1992.

Multi-Family Units Under Construction (NYC effect) is at the highest level since December 1986 at 440k. Single Family Northeast units at 59k, is a new record low.

June Housing Starts surged to 1.066mln, a 9.1% increase over the May data. June Building Permits, normally thought of as a forerunner to Starts, were up 11.6%. The surge in these data is very nearly all attributable to rule changes for permitting in New York City. The rush to get in under the implementation deadline drove June’s gains. Indeed, if not for the New York City rush, June would have recorded a 4% drop in Starts and only a 0.7% increase in Permits.

July Starts are expected at 960k and Permits are expected at 970k - a sharp return to the downtrend that has gripped the market since the high of 2.273mln Starts in January of 06. The June data was clearly indicative of urban building starts with the 5 units or more Starts jumping from 278k to 400k. Single Family Starts fell 36k, on pace with the 37k drop per month seen since June 2007.

Of interest in the day’s report will be the total number of Homes Under Construction; the June data, at 965k, was the lowest level since September 1998. Single Family Homes Under Construction, at 507k, was the lowest level since April 1993. Homes Under Construction has been dropping at an average rate of about 15k per month since June 2007. Back-of-the-envelope calculation brings these data to 492k.

If no further distortions occur, expect that Starts and Permits will go back to trend with a muted market reaction.

Housing starts in June posted an unexpected rebound, jumping 9.1 percent to an annualized 1.066 million unit pace and following a 2.7 percent decline in May. However, strength was lopsided - mainly in New York City and based on a one-time change in regulations. The June rebound was led by a 42.5 percent monthly surge in multifamily starts as single-family starts fell 5.3 percent. The surge in multifamily starts reflected the enactment of more restrictive building codes in New York City effective July 1, 2008 which created a rush to get permits before that date which in turn boosted starts. For July, there will almost certainly be a sizeable drop in multifamily and overall starts as starts in New York City fall back to probably even lower than pre-June levels (starts there probably were accelerated by more than one month). Markets should focus on the single-family component for now.

Housing starts Consensus Forecast for July 08: 0.950 million-unit rate
Range: 0.890 million to 1.065 million-unit rate

For all the information concerning Housing Starts please click on this graph.

June Housing Starts surged to 1.066mln, a 9.1% increase over the May data. June Building Permits, normally thought of as a forerunner to Starts, were up 11.6%. The surge in these data is very nearly all attributable to rule changes for permitting in New York City. The rush to get in under the implementation deadline drove June’s gains. Indeed, if not for the New York City rush, June would have recorded a 4% drop in Starts and only a 0.7% increase in Permits.

July Starts are expected at 960k and Permits are expected at 970k - a sharp return to the downtrend that has gripped the market since the high of 2.273mln Starts in January of 06. The June data was clearly indicative of urban building starts with the 5 units or more Starts jumping from 278k to 400k. Single Family Starts fell 36k, on pace with the 37k drop per month seen since June 2007.

Of interest in the tomorrow’s report will be the total number of Homes Under Construction; the June data, at 965k, was the lowest level since September 1998. Single Family Homes Under Construction, at 507k, was the lowest level since April 1993. Homes Under Construction has been dropping at an average rate of about 15k per month since June 2007. Back-of-the-envelope calculation brings these data to 492k tomorrow.

If no further distortions occur, expect that Starts and Permits will go back to trend with a muted market reaction.

The moon-shot in June Housing Starts and Buildings Permits falls to earth rather quickly. Commerce reports Permits in the Northeast at 237,000 for June. The average number of Northeast Permits over the past 12 months is 132,250 on a seasonally adjusted basis, so these data are astounding at best and misleading at worst.

Indeed, the Northeast number accounts for more than 25% of all permits reported in June. On a seasonally adjusted basis, permits increased 11.6%, but if the Northeast is excluded from the data, they were up only 0.7%.

Housing Starts are “ratio adjusted” to the permits, so a rise in permits has a direct affect on Starts. On a seasonally adjusted basis the Northeast had 126k starts, a 52.9% y-o-y increase, the highest level since 1997 - sort of.

The June Housing Starts and Building Permits data are skewed by Permits, which are skewed by a change in NY City permitting law and by seasonal factors. There should be no expectation that the housing market is on the mend.