The 25.5% jump in October’s housing starts was much more than the anticipated 10.4% increase (the largest monthly increase since August 1982). On an annual basis, the volatile starts are now 23.3% higher than a year ago. This increase follows two months of decline, -9.5% in September and -4.4% in August. The increase in starts was largely in the multifamily sector, which rose 74.5% (following a 39.6% plunge in September, largest increase since 2011), however, single-family starts were also up quite smartly, rising 10.7%. Multifamily starts are now 28.2% higher than a year ago, while single-family starts are 21.7% higher than last year. Starts in October were well above the 1 million mark, at 1,323,000. Since 1947, the median monthly reading in housing starts has been 1.46 million. Meanwhile, building permits rose by 0.3%, to 1,229,000, 4.6% higher than 12 months earlier; they had been expected to fall by 2.7% in the month.
Regionally, the pattern of housing starts activity again shows that the strength was broadly based: starts rose by 44.8% in the Northeast, 44.1% in the Midwest, 23.2% in the West and 17.9% in the South.
According to the latest NAHB homebuilders’ survey for November, building activity was again very solid in the month. The sentiment index held fast at 63 in November, after 65 in September (50 is the dividing line between viewing conditions as good or poor). The NAHB stated: “With most of our members responding before the November elections, confidence levels remained unchanged as they awaited the results.” “Still, builder sentiment has held well above 60 for the past three months, indicating that the single-family housing sector continues to show slow, gradual growth.” “Ongoing job creation, rising incomes and attractive mortgage rates are supporting demand in the single-family housing sector. This will help keep housing on a steady, upward glide path in the months ahead.”
Following weakness in both August and September, this report was a lot more encouraging. All of the weakness in September’s report was located in the multifamily sector (where growth has been exceptionally strong for sometime) and the strength for October showed a more even split between two single- and multifamily homes. What is a slight concern, however, has been the continued slump in the MBA mortgage purchase index. The MBA reported a sharp 6% drop in the index, which brings it to its lowest level since January. Much of the weakness has been blamed on the election of Donald Trump, with mortgage rates having their biggest weekly gain since the taper tantrum of June 2013. Rates have also now risen for 5 of the last 6 weeks on expectations for faster growth and higher inflation. Overall, however, this report helped to confirm that the trend in housing activity should continue to be one of the economy’s bright spots, with employment growth solid, income growth improving, confidence high, inventory very tight and the rate of building still below what is believed to be the rate necessary to meet expected future demand and replace the old stock. This should give the Fed further encouragement to move in December.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.