Housing Starts And Building Permits Disappoint

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

This morning's releases of Housing Starts and Building Permits for the month of May both came in weaker than expected. With regard to Housing Starts, economists were expecting claims to come in at 914K vs. expectations for a level of 950K. While Building Permits were technically weaker than expected (974K vs. 975K), you can't get much closer than 1K off the estimate.

The table below breaks down the seasonally adjusted annualized levels for Housing Starts and Building Permits by type of dwelling and region. While today's Housing Starts report was weaker than expected, it is important to note that they did increase 6.8% relative to last month and more than 20% since last year. Breaking down the starts by types of units, single-family starts were pretty much unchanged vs. April (+0.3%), but up 16% compared to last year.

Multi-family units, however, saw an increase of 21.6% compared to April and 32.1% vs. a year ago. Typically, single-family units provide more economic impact, so it is a slight negative to see most of the strength focused in multi-family units this month. But given that they both showed growth, we would not be overly concerned. On a regional basis, the results were mixed as both the Northeast and Midwest saw declines compared to April, which were likely weather-related, while the South and West regions both saw increases. Compared to last year, the Northeast was the only region where starts did not show an increase.

Unlike Housing Starts, which increased compared to last month and last year, Building Permits were mixed as they showed a 3.1% m/m decrease but a gain of 24.7% vs. last May. In terms of the weakness in the m/m reading, all of it was in Permits for multi-family units (-10%). On a regional basis, Permits were down m/m for every region except the Northeast, but relative to last year every region has seen an increase of at least 19.1%.