Homebuilding surprised to the upside in August even amid Hurricane Harvey’s wrath, which disrupted activity in the final days of August. Markets had anticipated a 1174k print but homebuilders broke ground on 1180k units, from an upwardly revised July figure (+35k).
Single-family starts advanced by 13k from a downwardly revised July reading (-18k), clocking in at 851k, while multi-family construction contracted (-23k), to 329k, from an upwardly revised (+53k) July figure.
Building permits came in strong at 1300k, while markets had anticipated 1220k. The volatile multi-family segment accounted for the entirety of the increase (+82k), with single-family permits stumbling (-12k) from an upwardly revised July reading (+1k) to clock in at 800k in August.
As expected, activity in the South weighed (-48k) on account of construction disruptions related to Hurricane Harvey, which made landfall in Texas on August 25th. Apart from this, both the West (+12k) and Midwest (+36) saw homebuilding gain momentum, while the Northeast saw a retrenchment in activity (-10k) for the second consecutive month.
Key Implications
Today’s report is a healthy one when considering the negative impact from Hurricane Harvey on construction combined with the upward revisions to July’s figures. Although the continued effects of Hurricane Harvey, in addition to Hurricane Irma, will lead to a cooling in September’s housing starts, this activity will be recouped as the year progresses. With an estimated minimum 20k houses destroyed in the two hurricanes combined, residential investment will receive a boost in the fourth quarter of 2017 and first half of 2018 as rebuilding begins, with additional, but diminishing impacts likely to be felt in the quarters thereafter.
Consumers are reaping the benefits of a tightening labor market and this will support homebuilding as wages turn higher. Demand remains strong as reflected in current record-low selling times in the new home market, with lending conditions also remaining supportive. Mortgage rates in August were over 30 basis points lower than their recent peak at the start of the year.
All told, while the following months are expected to reflect additional hurricane-related disruptions to construction, this report confirms that fundamentals remain strong in the housing market and will continue to support residential investment as a positive contributor to growth over the next year.
