While there is ample evidence that the world economy is starting to pick up steam, one of the traditional engines for driving the U.S. economy out of recession is sputtering.?Both Building Permits and Housing Starts for September came in well below expectations.
Housing starts nationwide were at a seasonally adjusted annual rate of 590,000, up 0.5% from the 587,000 annual rate in August and down 28.2% from a year ago.
As is shown in the chart below (from http://www.calculatedriskblog.com/) it is not as if housing starts were exactly robust a year ago. At their peak they were over 2.2 million. The number was also well below consensus expectations of a 610,000 annual rate. Making things worse, the August number was revised sharply lower from an initial read of 598,000.
The one silver lining in the starts data is that the weakness was mostly in the more volatile multifamily (apartments and condos with five or more units) sector, which dropped 23.5% for the month to an annual rate of 78,000.?This reversed a big increase in August, but multi-family housing construction has come to a near stop, and is down 69.3% from a year ago.
With rapidly rising vacancy rates and rents declining (both rent and owners-equivalent rent used to calculate the CPI fell for the first time in 17 years in September, and regional and anecdotal evidence suggests that the declines are much larger than the CPI data has captured so far), it is probably a good thing over the long term that we are putting up fewer of them.?Single family starts rose 3.9% on the month to an annual rate of 501,000, and are down just 8.7% from a year ago.
The weakness in starts will help clear up some of the inventory overhang going forward, but also means we will be getting less of a boost from Residential Investment in growing GDP.?Weak starts are not exactly a good thing for construction employment, or employment if firms producing building materials. Also not good for the profits of homebuilders like
D.R. Horton (
DHI) and Ryland (
RYL), or for firms like Masco (
MAS).
Regionally, the only area that showed any strength in overall starts was the super-important South region, where starts rose 7.1% on the month, although they are still down 26.5% from a year ago.
Just how important is Dixie to housing? In September it was responsible for 50.8% of all starts.
The Midwest held up fairly well, dropping 1.8% on the month. It is also in the best shape on a year-over-year basis, down 22.5%.
