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Solid, if not yet Spectacular, Progress for U.S. Home Starts in August

09/20/2012 by Alex Carrick, RCD Canadian Chief Economist

U.S. home starts in August were 750,000 units seasonally adjusted and annualized, according to a joint press release from the Census Bureau and the Department of Housing and Urban Development.

The three-quarters-of-a-million mark in the latest month was 2.3% above July’s level and a substantial 29.1% increase versus August last year.

It wasn’t quite as high as two months ago when the starts level was 754,000 units. June’s performance was the best in more than four years, dating back to October 2008 (777,000 units).  

U.S. housing starts most recently peaked in January 2006 at 2.273 million units. They subsequently nosedived until touching down at 478,000 units in April 2009.

Then they proceeded to stay near the bottom for the next two-and-a-half years. Since the start of this year, however, there have been definite signs of improvement.

U.S. home starts through the first eight months of 2012 have averaged 729,000 units. That’s one-quarter higher (+25.1%) than during the first two-thirds of last year (583,000 units).

In the latest month, the improvement in overall starts was led by the Midwest (+20.7% month over month), followed by the South (+3.7%), while the West (-4.3%) and Northeast (-12.6%) declined.

Year to date, the West (+32.1%) has been the standout region, followed by the South (+26.3%), Midwest (+18.0%) and Northeast (+16.9%).

Notice that all four regions have made year-to-date gains compared with January to August of 2011. 

It should be pointed out that the South usually accounts for almost as many starts as the other three regions added together. August was no exception with the South’s share of the total sitting at 48%.

The West accounted for the next largest proportion (24%). The “slices” became smaller for the Midwest (18%) and Northeast (10%).

On a month-to-month basis, single-family starts (5.5%) in August performed better than multiples (-4.9%). The year-to-date story is another matter, with singles (+20.2%) increasing at only about half the rate of multiples (+37.9%).

Single-family construction is the larger portion of the whole, approximately 70% compared with 30% for multiples as measured according to the number of units started.

Earlier this year, the better trend for starts was indicated by a significant improvement in the number of residential building permits issued. The permits series tends to lead the starts series by a month or two.

The number of permits has crossed above a significant benchmark, 800,000 units. In the latest month, the figure was 803,000 units. Such a level continues to augur well for starts, even though it was a slight decline from the 811,000 units recorded the month before.

A year ago, the level of residential permits was only 645,000 units. The latest figure is an improvement of 24.5%.

As set down earlier in this article, the swing in U.S. starts over the past nearly seven years has been from a high of 2.7 million units at the beginning of 2006 to only 480,000 units in the middle of the 2008-2009 recession.

A “normal” level for U.S. home starts – i.e., as recorded in the early- to mid-00s before speculation created a boom that quickly turned into a bust – is between 1.5 million and 1.7 million units.

August’s level of starts (750,000 units) was a return to about half where they would be if the economy were up to speed. Of course, the argument is circular. The fact home starts are still in the doldrums is a major reason the economy isn’t trotting along as fast as it can.   

Still, a 750,000-unit figure for starts is solid progress, even if it can’t yet be called spectacular.

An improvement in home starts, as well as in existing home sales, will help tidy up the overhang in labor markets.

With respect to resales, the National Association of Realtors (NAR) also reported a good month in August. At 4.82 million units seasonally adjusted and annualized, existing home sales were 7.8% above their July level and 9.3% ahead of August last year.

Perhaps just as important, the national median (i.e., the center point, not the average) home price rose on a year-over-year basis for the sixth month in a row. The latest jump took prices up 9.5% to a figure of $187,400.

According to the NAR’s press release, affordability remains extremely favorable. Mortgage rates have advanced only a notch from their all-time low and prices, while finally climbing, are still hugely attractive.

The NAR makes the case that sales levels would be even stronger if it weren’t for the fact many potential buyers are still finding it hard to qualify for mortgages. Apparently, remnants of the credit crunch linger on.

A better U.S. housing market, both in the new and resale markets, will have strong positive implications for the world economy.

For Canada, a first improvement will appear in forestry sector export sales. There are already indications of some advancement in lumber prices. 

U.S. monthly housing starts
U.S. monthly housing starts
Jan-Aug average 2011 = 0.583 million units;
Jan-Aug average 2012 = 0.729 million units (+25.1%).
U.S. Annual Starts:
2007 = 1.355 million units (-24.8%);
2008 = 0.906 million units (-33.1%);
2009 = 0.555 million units (-38.8%);
2010 = 0.587 million units (+5.9%);
2011 = 0.609 million units (+3.8%).
Data source: U.S. Census Bureau (Department of Commerce).
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:
2010 = 71,600 units;
2011 = 67,700 units (-5.4%).
 
U.S. midwest annual starts:
2010 = 97,900 units;
2011 = 100,900 units (+3.1%).
Jan-Aug average 2011 = 66,800 units;
Jan-Aug average 2012 = 78,000 units (+16.9%).
 
Jan-Aug average 2011 = 95,000 units;
Jan-Aug average 2012 = 112,100 units (+18.0%).
     
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:
2010 = 297,500 units;
2011 = 307,800 units (+3.5%).
 
U.S. west annual starts:
2010 = 119,900 units;
2011 = 132,500 units (+10.5%).
Jan-Aug average 2011 = 298,500 units;
Jan-Aug average 2012 = 377,100 units (+26.3%).
  Jan-Aug average 2011 = 122,600 units;
Jan-Aug average 2012 = 162,000 units (+32.1%).
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.

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