Housing Starts Declined 5.8% in August


Implications:  Home building fell by more than expected in August as a large drop in construction in the South more than offset gains around the rest of the country.  Housing starts declined 5.8% to a 1.142 million annual rate in August, after robust months in June and July.  This is nothing new, home building often moves in a seesaw pattern.  To get rid of the monthly volatility and reveal underlying trends, we look at the 12-month moving average, which is now the highest since 2008.  The reason for the decline in starts in August was a 14.8% drop in the South, which will be short-lived for a couple of reasons.  First, the lower 48 states had more rain this August than any August since 1977, with much concentrated in the Southern states like Louisiana.  Second, permits for future single-family construction in the South rose 3.6% to a 404,000 annual pace in August, the strongest since 2007.  The general rise in home building that started in 2011 is far from over.  Based on population growth and "scrappage," housing starts should rise to about 1.5 million units per year, so a great deal of the recovery in home building is still ahead of us.   It obviously won't be a straight line higher, but expect the housing sector to keep adding to real GDP growth in 2016-17.  In other recent housing news, the NAHB index, which measures sentiment among home builders, boomed to 65 in September from 59 in August. The September reading of 65 matches the highest level for the index so far in the economic recovery.  More jobs and faster wage growth are making it easier to buy a home and builders will respond in the months and quarters to come.

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Posted on Tuesday, September 20, 2016 @ 10:47 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.