The Census Bureau and the U.S. Department of Housing and Urban Development said that housing permits soared to over 1 million units in October, breaching a level not seen since April. This is the first release of housing data since the government shutdown, and the report adds to our knowledge of permits for the months of September and October. Housing permits rose from a revised 926,000 annualized units in August to 974,000 in September to 1,034,000 in October.
Unfortunately, this report did not include new data for housing starts and housing completions. The press release stated, “The lapse in federal funding affected the data collection schedule for the Survey of Construction, the source of data on new housing units started and completed.” In other words, we will need to wait until the next release date (December 18) to learn more about new residential construction activity.
Returning to the housing permits data, the gains stemmed entirely from multi-family units, with permits for that component up from 299,000 in August to 359,000 in September to 414,000 in October. This was the fastest pace since June 2008. Multi-family construction permits have been quite volatile this year. After peaking at 391,000 in April (the last time that total permits exceeded 1 million), they declined significantly, bottoming out at 293,000 in June. This latest data suggests that the pace of construction of apartments, townhouses, and condos has rebounded to levels not seen since the spring, but future data will tell whether this is the beginning of an upward trend or just another blip in its recent up-one-month, down-one-month cycle.
Meanwhile, single-family residential construction permits have been mostly stalled, averaging 611,700 year-to-date. Looking at the last three months, housing permits have shifted from 627,000 in August to 615,000 in September to 620,000 in October.
Of course, the last few months have also seen a lot of swings in mortgage rates, dampening some of the enthusiasm in the housing sector. According to Freddie Mac, the average 30-year mortgage rose from 3.35 percent the week of May 2 to 4.57 percent the week of September 12. It has settled down a little since then, averaging 4.22 percent last week.
In summary, the strong housing permits data in October were encouraging, particularly to the extent that permitting serves as a proxy for future construction activity. The good news in the housing sector is that the longer-term trend remains a positive one, with home builders still mostly upbeat despite recent softness. Lower mortgage rates have also provided a bit of a boost of late, even though they remain above the borrowing costs seen in the spring.
Yet, this report also hints that some weaknesses continue to persist. Almost all of the increase in housing permits in October was in the highly volatile multi-family unit component. Single-family activity was essentially flat over much of the past few months. If housing is going to once again start growing strongly, we will need more single-family residential construction activity. I expect that to happen moving forward. This is particularly true given recent improvements in the economy from softness earlier in the year, and as potential buyers get used to the “new normal” in (still historically low) mortgage rates, that will also help.
Chad Moutray is the chief economist, National Association of Manufacturers.