The Census Bureau and the U.S. Department of Housing and Urban Development said that new housing starts once again exceeded 1.2 million in September. New residential construction starts were up from an annualized 1,132,000 units in August to 1,206,000 units in September, which kept residential activity near the eight-year high of 1,211,000 units in June. Overall, this report shows continued progress in the housing market. Indeed, housing starts have risen a healthy 17.5 percent year-over-year, up from 1,026,000 units in September 2014.
Still, much of the movement in recent months in the headline starts number has come from the multifamily segment, up from 394,000 in August to 466,000 in September. Illustrating the volatility in the data, multifamily starts have ranged from a low of 300,000 in February to a high of 524,000 in June, with the latter representing the fastest pace since November 1987. Meanwhile, single-family starts have plodded generally higher without much volatility from month to month, up from 738,000 in August to 740,000 in September. Since bottoming out at 600,000 units in February, single-family starts rose to a 7½-year high in July with 759,000 units. Over the past three months, single-family starts have averaged 745,667, indicating strong momentum year-to-date. On a year-over-year basis, single-family starts have risen 12.0 percent.
In contrast to the housing starts data, residential permitting was off this month. New housing permits declined from 1,161,000 units at the annual rate in August to 1,103,000 units in September. This data has averaged 1,131,333 units over the past three months (July through September), representing a fall-off from the more-robust paces of 1,250,000 and 1,337,000 units in May and June, respectively. Before getting too worked up over this, however, it is important to note that much of the recent decline stems from weaker multifamily permitting. In June, permits soared to 645,000 units, skewed higher by the expiration of tax credits in New York. Since then, they have settled lower, down from 462,000 in August to 406,000 in September.
On a more positive note, single-family housing permits edged down a little, down from 699,000 in August to 697,000 in September. This was up from 626,000 in February and 653,000 in September 2014. As such, year-over-year growth for single-family permitting was up 6.7 percent, a fairly decent pace. This should bode well moving forward for new residential construction.
This should help to explain the strong confidence numbers from the National Association of Home Builders (NAHB) and Wells Fargo, which were released yesterday. The Housing Market Index rose from 61 in September to 64 in October, its highest level since October 2005. Index values over 50 suggest that home builders are more confident than not in their economic outlook, and the HMI has now exceeded that threshold for 16 straight months. Indeed, this measure has trended in the right direction over the past 12 months, up from a reading of 54 one year ago. Nonetheless, NAHB Chairman Tom Woods also offered some words of caution. He said, “…our members continue to tell us there are still pockets of softness in some markets across the nation, and that they face challenges regarding the availability of lots and labor.”
The largest gains in confidence in October stemmed from the Northeast and the West, with softer data coming out of the Midwest. Yet, home builders were mostly upbeat about single-family home sales over the next six months. The forward-looking index of sales activity rose from 68 to 75, its highest point since August 2005. That should provide some encouragement for the residential housing moving ahead.
Chad Moutray is the chief economist, National Association of Manufacturers.