Housing Starts And Building Permits In Line With Forecasts

Includes: ITB, IYR, REZ, XHB
by: Bespoke Investment Group

This morning's release of Housing Starts and Building Permits for July came in pretty much in line with forecasts. In the case of Housing Starts, July's total was 896K on a seasonally adjusted annualized rate (SAAR), which was slightly below the consensus forecast from some sources and in line with consensus according to other sources. For Building Permits we saw a similar setup as total permits came in at 943K on a SAAR basis. This was also in line with consensus according to some sources and slightly weaker according to others. We'll call it a push for both.

The table below breaks down each report based on the size of units being built as well as the regional distribution. As shown, in the case of both Housing Starts and Building Permits, single-family units saw a month-over-month decline of about 2%, while multi-family units saw double-digit increases. Relative to last year, both single and multi-family units saw double-digit percentage increases, although the rate of increase in multi-family Housing Starts was more than double that of single-family starts. For Building Permits, it was single-family that saw the largest year-over-year increase (17.9%), while multi-family permits increased by a relatively meager 3.4%.

Looking at each of the reports on a regional basis shows that Housing Starts saw the largest month-over-month increase in the Northeast (40.2%) and Midwest (25.4%), while starts in the South actually declined by 7.0%. On a year-over-year basis, we saw a similar trend as the Northeast and Midwest led, while the South lagged. With respect to Building Permits, the month-over-month increases on a regional basis were all relatively meager at 7.1% (West) or less.

Given the fact that interest rates have been on the rise since the spring, there was a lot of anticipation heading into today's reports to see how rising rates have impacted the housing market. Unfortunately, if you were looking for a clear direction you did not get it, as there was some meat in the report for both sides. Housing bulls will point out that overall Housing Starts are still increasing at a monthly rate of 5.9% and more than 20% compared to last year. Bears, on the other hand, will argue that the 2.2% month-over-month decline in single-family Housing Starts and the 1.9% decline in single-family Building Permits are both signs that rising rates are causing a slowdown in residential real estate.