A Little Ray of Sunshine in Housing Starts

There were some reasonably positive numbers on housing this morning.

Overall, housing starts were up 3.6% to a SAAR of 582,000. Within that number single family starts were up 14.4% to a SAAR of 470,000, Starts for two to four unit properties were down 25.8% to 112,000 and starts on properties with five or more units were down 29.4%. Permits were up 8.7% for a SAAR of 563,000.

Regionally, starts were up 28.6% in the Northeast, up 33.3% in the Midwest, down 1.4% in the South and down 14.8% in the West.

Here is a sampling of economists’ take on the numbers from the WSJ Real Time Economics blog:

• This report could be interpreted in two ways. On the optimistic side, it appears that residential construction activity may have stabilized, following three consecutive years of deep correction, and that housing activity could perhaps contribute favorably to U.S. economic activity in the second quarter. On the other hand, with sales continuing to lag behind the level of building activity by a factor of 200,000, this uptick in construction will likely mean that the inventory of unsold homes (which remains at historically high level) could continue to rise. As such, one could interpret this report as somewhat bitter-sweet. –Millan L. B. Mulraine, TD Securities

• While starts have moved off of their cyclical bottom, we see limited upside potential over the months ahead. In the single family segment, continued weakness in the labor market and what will remain a steady stream of foreclosures will keep downward pressure on house prices and ensure that builders – in an increasingly broad geographic range of markets – see steady competition from low-priced foreclosures. –Richard F. Moody, Forward Capital

• With the number of unsold homes for sales already extraordinarily high and set to ramp up further in coming months as foreclosures accelerate and the recent backup in mortgage rates potentially puts some pressure on sales, this recent spike in single-family housing starts certainly seems ill-advised and likely to worsen still massive imbalances in the housing market. Meanwhile, rising apartment vacancy rates, an even worse inventory situation in the condo market than for single-family homes, and the collapse of the commercial real estate financing market are likely to continue to keep multi-family construction badly depressed. –Ted Wieseman, Morgan Stanley

• This is a pleasant surprise; we expected a period of consolidation after the unexpected leap in May — which was revised up. Even better, all the gain in starts was in the single-family sect or, up a massive 14.4%. This was the fourth straight gain, though note that single-family starts need to rise another 20% or so just to return to the trend prevailing before Lehman. We are inclined to reserve judgment on whether this is the start of a re al rebound or just a return to the pre-Lehman trend. –Ian Shepherdson, High Frequency Economics

• Multi-family construction is being restrained by the glut of condominium and apartment projects completed over the past couple of years. Apartment vacancy rates have soared in recent years. Rising vacancy rates are pulling down rents and reducing the incentive to build new properties. –Mark Vitner, Wells Fargo

• The improvement, on the surface, did not appear to be spread evenly across the nation. There were about 30% gains in both the Northeast and the Midwest, a small drop in the South but a large decline in the West. But even in those areas where starts were off, single-family activity still improved. That is a sign that conditions are changing in most of the nation. –Naroff Economic Advisors

• The evidence is growing that housing construction has bottomed out and that single-family housing construction is beginning to recover—although, given the volatility from month-to-month in housing starts and building permits, we would like to see the July data before talking too much about recovery versus stabilization. Moreover, stabilization and modest recovery in housing construction and home sales does not imply stabilization in home prices given the inventory of homes for sales and elevated levels of foreclosures. –RDQ Economics

• Single-family starts have risen at an accelerating rate in every month since March and are up in each of the four census regions. Because starts remain at an extraordinarily low level – below to trough of every other post-war recession – further increases from here look likely. However, the excess inventory of existing homes should slow new investment as starts recover from today’s depressed levels. –Nomura Global Economics

• There is no doubt that today’s report, particularly concerning the single family sector, was considerably better than expected. However, before getting too carried away by the news, bear in mind that the National Association of Homebuilders’ Housing Market Index for July, released yesterday, is still languishing at a very low level of 17, and it has managed to improve by just three points in the most recent three months after bouncing in April from record lows set over the winter. Therefore, while this index (and single family starts) are well off the massively depressed lows set late last year and early this year, this has in all likelihood been a rebound from unsustainably weak results rather than the start of anything resembling a sustained “v-shaped” recovery. –Joshua Shapiro, MFR Inc.

My take is that there is some positives in the numbers but the percentage increases are outsized given the low base that we’re operating from. I was struck by the regional differences and that might be a trend that we see continuing for sometime. It’s not only possible but likely that the states in which the bubble was most concentrated are going to considerably lag other areas in a housing recovery. That bodes ill for the West and South. That might also be a precursor to a geographically uneven recovery from the recession.

If there is a recovery afoot, we’re going to have to wait for more months of data to prove it and it’s likely to be very fragile and subject to any number of setbacks from other areas of the economy.

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