Fundamental Analysis

US: Housing Starts Fall Slightly Off An Upwardly Revised Level

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Housing starts fell 0.8 percent in August but starts were revised higher for July, leaving starts slightly above the consensus forecast. Permits rose a solid 5.7 percent, with all the gain in multi-family units.

Homebuilding Looked Solid Prior to the Storms

Data for August housing starts were likely only minimally impacted by Hurricane Harvey. The storm hit in the last week of August and may have cut into starts in Houston, which has long been the number one market for single-family starts and also one of the top markets for apartment construction. Overall housing starts fell 0.8 percent, with the entire decline coming in multi-family units, which fell 6.5 percent in August. Most of that drop was in apartments, which have seen a great deal of supply come on the market in many parts of the country, cooling new construction.

Single family starts rose 1.6 percent in August to an 851,000 unit pace and are continuing to trend higher. Data through the first eight months of 2017 show single-family starts running 8.9 percent ahead of their year-ago pace. By contrast, multi-family starts through August are running 9.9 percent below the pace maintained through the first 8 months of 2016.

The monthly housing starts data are reported on a seasonally adjusted annualized basis, meaning the monthly figures reflect how many homes would be built in a year if that month's pace was maintained for the entire year. Single-family starts averaged an 849,000-unit annual rate over the past three months, which is close to the pace averaged this year. We suspect single-family starts are set to slow, however. Permits for new single-family homes have been running at just an 808,000-unit pace for the past three months, or 4.8 percent below single-family starts. Hurricanes Harvey and Irma will also likely slow starts in coming months, as resources are redirected toward repairs and rebuilding efforts. Texas and Florida combined account for about 25 percent of the nation's single-family starts, so any production lost there is likely to weigh heavily on the national data.

While single-family starts appear set to weaken, multi-family starts may be primed for a rebound. Multi-family permits jumped 19.7 percent in August, to a 500,000-unit pace. Permits averaged a 461,000-unit pace over the past three months - a whopping 32.8 percent ahead of multi-family starts.

The number of homes under construction rose 1.3 percent in August to 1.082 million units, on a seasonally-adjusted annualized basis. The number of single-family homes currently being built rose 2.2 percent to 472,000, also on an annualized basis. Multi-family units rose 0.7 percent. The largest increases were in the South and West, which account for more than two-thirds of the homes being built. While the number of homes under construction rose solidly, the number completed fell 10.2 percent, with single-family completions falling a whopping 13.3 percent, or by 111,000 units in August. Hurricane Harvey appears to have held back completions. The bulk of the drop was in the South, which saw single-family completions tumble 20.8 percent in August.

Author: Wells Fargo SecuritiesWebsite: http://www.wellsfargo.com/
Wells Fargo Securities
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