Housing Starts and Permits Were Actually Down -- Not Up -- In June

by: Barry Ritholtz

I didn't post on this yesterday, as I assumed that everyone would understand how new building codes in NYC effective July 1 skewed the new Home Starts to the upside in June.

My assumptions were incorrect.

I've already read several embarrassing misunderstandings of this aberrational data (we will keep them anonymous to protect the guilty). In a wildly optimistic, misguided attempt to straighten out some folks who should know better, let's review yesterday's numbers.

The Census Department releases New Housing Starts and Permits for Construction each month. For June, the numbers were +11.6% and 9.1% respectively.

However . . . In a large box at the bottom of the Census Press Release (you had to be blind to miss it), was the following:

Building permits and housing starts for June showed large increases of 11.6% and 9.1%, respectively.

Northeast multifamily activity showed the largest gains. New York City enacted a new set of construction codes effective for permits authorized as of July 1, 2008. In June, there was a large increase in building permits issued for multifamily residential buildings in New York City

Excluding the Northeast multifamily data, there was a 0.7% increase in permit authorizations and a 4.0% decrease in housing starts in June 2008.  (emphasis added)

So aside from the aberrational rush to beat the new building codes, we saw a 4% decrease. Further, we should expect this rush in NYC to "steal" lots of starts and permits from future months.

Some comments from various analysts via Real Time Economics:

• The key number in the report, as it is every month, is single-family permits, which fell by 3.5% — the worst month since March — to a new 1-year low. The trend remains firmly downwards, as it should with new home sales still falling and inventory outrageously high.  -Ian Shepherdson, High Frequency Economics

• Starts of single family homes, which provide a more accurate picture of the national housing market, fell 5.3% to an annual rate of 643,000. Since the trough of the deep 1981-82 recession, only the single-family starts volume of January 1991 was lower than this latest reading.  -David Resler, Nomura Securities

• Single family construction has simply not fallen by an amount sufficient to drive any meaningful improvement in the inventory overhang without even taking into account that significant numbers of foreclosures will only add to that overhang while the demand side of the market continues to soften.  –Richard F. Moody, Mission Residential 


Finally, a few charts, via Northern Trust's Asha Banglore (click for larger charts):



Look for a weak July due to this "forward borrow:"



Census Bureau, July 17, 2008

Download: New Res Const_June 2008.pdf

Stripping Out New York, Housing Is ‘Bleak’   
Phil Izzo
Real Time Economics (WSJ) July 17, 2008, 10:20 am

Housing Starts Declined In June, Headline Is Misleading
Asha G. Bangalore
Northern Trust, July 17, 2008

Homes Data Gets a Lift, by a Fluke
NYT, July 18, 2008