Interest Rate Roundup

Tuesday, September 21, 2010

Housing starts pop in August

We just got the latest read on home construction, this time for the month of August. Here's what the numbers showed ...

* Housing starts jumped 10.5% to a seasonally adjusted annual rate of 598,000 units in August from a downwardly revised 541,000 units in July. Building permits increased 1.8% to a SAAR of 569,000 from 559,000. That topped analyst expectations for readings of 550,000 and 560,000, respectively.

* By property type, starts rose a relatively modest 4.3% in the single family market. They surged 32.2% in the multifamily arena. On the permitting front, multifamily permits rose 9.8% while single family permits dipped 1.2%.

* How did the regional breakdown look? Starts fell 24.3% in the Northeast. But they rose 7% in the South, 21.7% in the Midwest, and 34.3% in the West. Permits were more subdued. They fell 2.5% in the South and 5.3% in the Midwest. Issuance flat lined in the Northeast, but surged 19% in the West.

The construction industry thawed out a bit in August after an unseasonal deep freeze earlier in the summer. Led by another large gain in multifamily construction, starts rose to their highest level since April. The gains were relatively broad-based across the country, too. Permitting activity was more subdued, however, with the core single-family home market contracting for the fifth month in a row.

I've been saying for a while that the housing market is caught betwixt and between opposing forces. Housing is affordable again thanks to the combination of cheap mortgage rates and falling prices. But qualification standards are tighter than in the past, while buyer confidence is lacking thanks in large part to the lousy labor market. We also have a large overhang of distressed, "used" homes.

The result is a rather subdued operating environment for the construction industry. Starts likely won't plunge from here. But neither will they surge. We'll just be stuck in the mud for a while.


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