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No counter-punch in U.S. home starts; another decline in August

09/20/2011 by Alex Carrick, RCD Canadian Chief Economist

In August, U.S. home starts remained well and truly “kayoed” according to the latest monthly report from the Census Bureau and Department of Housing and Urban Development.

Groundbreakings in the latest month were 571,000 units, seasonally adjusted and annualized, a drop of 5.0% from July’s 601,000-unit level. They were also down to nearly the same degree versus August 2010, -5.8%.

The August report does contain a glimmer or two of better news. Building permits, which are an advance indicator of starts, rose 3.2% in the month to stand at 620,000 units versus 601,000 in July. That also placed them 7.8% above the August 2010 level of 575,000 units.

And completions continue to fall month over month, which will help to remove unsold inventory, eventually tightening up the market.

Year-to-date U.S. home starts are down 3.5% versus the first eight months of last year.

The singles market, which is nearly three-quarters of the total, has accounted for all of the decline. January to August single-family starts on average were -13.8% versus the same period last year.

In the much smaller multi-family market, a significant year-to-date increase has been recorded (+40.3%). This is to satisfy living requirements from one of the few segments of the labor market that has been in rising demand, young well-educated individuals with high-tech skills.

They’re launching their careers and setting up their first homes outside their parents’ place or college residences.

It is also a result of the increasing demand for rental units by people who have lost their suburban homes or who are looking for generally lower-cost accommodation.

Regionally, the year-to-date percentage changes in home starts haven’t varied much.

The Midwest is struggling the most (-8.1%), followed by the Northeast (-5.2%) and the South (-3.2%). The West has recorded a miniscule uptick (+0.3%).

Public discourse over how to tackle Washington’s debt problems inevitably leads to speculation about tax changes. Mortgage interest-payment deductibility often comes under the microscope.

The U.S. is one of the few nations that allow homeowners a tax break on mortgage payments.

There’s no doubt it’s a popular measure with homeowners. However, its cost to Washington over the next five years has been estimated at $600 billion. There is obvious potential to make up a big chunk of the extra $1 trillion-plus in deficit reduction that is being sought by 2020.

Another strong case can be made for its removal, according to some analysts. Elimination would discourage the practice of buying super-sized mansions that has accounted for some of the wild speculative swings in U.S. home prices.

The International Monetary Fund (IMF) has cut its global economic forecast, citing even more potential for trouble if two conditions are not met – containment of the Greek debt crisis in Europe and failure by U.S. policymakers to reach an agreement on deficit reduction.

The IMF’s latest forecast of “real” (i.e., after-inflation) U.S. gross domestic product (GDP) growth has been scaled back to +1.5% from +2.5% made a quarter ago, in June. In 2011, U.S. total output growth is expected to increase marginally to +1.8%.

Greece is running rapidly towards a brick wall with respect to its finances. Other Euro-zone members have become frustrated by Greece’s inability to impose sufficient restraint measures. As a consequence, there has been a marked failure to bring the deficit down as fast as needed.

The spreading credit-worthiness wildfire has licked at Italy’s economy. Italian bonds have recently been downgraded by Standard & Poor’s to single-A status. The IMF is now estimating the Euro-area’s growth rate at +1.6% in 2011 and +1.1% in 2012 and that’s only if there is quick action to satisfy debt concerns.

In summary, the latest World Economic Outlook (WEO) from the IMF estimates growth globally at +4.0% in both 2011 and 2012, which is moderately encouraging. But there will be a large disparity between so-called “have” countries and “those-aspiring-to-have” status.

The developed world will advance only +1.6% in 2011 (about the same as for the U.S. alone), rising slightly to +1.9% in 2012. Emerging and developing economies, on the other hand, will charge ahead +6.4% this year and ease up on the accelerator only a tad in 2012 to +6.1%.

Within the overall framework of its global forecast, the IMF’s outlook for Canada has been revised downward. This nations’ economy will grow by +2.1% in 2011, according to the IMF, and by +1.9% in 2012. In June, the respective projections had been +2.9% and +2.6%.

U.S. monthly housing starts
U.S. monthly housing starts
Jan-Aug average 2010 = 0.601 million units;
Jan-Aug average 2011 = 0.580 million units (-3.5%).
U.S. Annual Starts:
2006 = 1.801 million units (-12.9%);
2007 = 1.355 million units (-24.8%);
2008 = 0.906 million units (-33.1%);
2009 = 0.555 million units (-38.8%);
2009 = 0.587 million units (+5.9%).
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.
U.S. and Canada: monthly housing starts
(seasonally adjusted at annual rates)
U.S. and Canada: monthly housing starts
Data source: U.S. Census Bureau (Department of Commerce) and Canada Mortgage and Housing Corp. (CMHC).
Chart: Reed Construction Data - CanaData.
U.S. regional housing starts
U.S. northeast housing starts   
 
U.S. midwest housing starts     
U.S. northeast housing starts   U.S. midwest housing starts
U.S. northeast annual starts:
2009 = 61,800 units;
2010 = 71,600 units (+15.9%).
 
U.S. midwest annual starts:
2009 = 97,100 units;
2010 = 97,900 units (+0.8%).
Jan-Aug average 2010 = 71,400 units;
Jan-Aug average 2011 = 67,600 units (-5.3%).
 
Jan-Aug average 2010 = 100,400 units;
Jan-Aug average 2011 = 92,300 units (-8.1%).
     
U.S. south housing starts       
 
U.S. west housing starts        
U.S. south housing starts   U.S. west housing starts
U.S. south annual starts:
2009 = 278,200 units;
2010 = 297,500 units (+6.9%).
 
U.S. west annual starts:
2009 = 116,800 units;
2010 = 119,900 units (+2.7%).
Jan-Aug average 2010 = 306,400 units;
Jan-Aug average 2011 = 296,600 units (-3.2%).
  Jan-Aug average 2010 = 122,600 units;
Jan-aug average 2011 = 123,000 units (+0.3%).
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.

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