Housing Starts Continue Advance


HUD and the US Census Bureau reported housing starts for October were up 3.6% from their elevated September level to a seasonally-adjusted annual level of 894,000, the highest since July 2008. On an annual basis, starts increased 41.9% from October 2011. The monthly increase was entirely in multifamily rental production, which rose 11.9% while single-family production was virtually unchanged.

Housing permits, a signal of future construction activity, were down 2.7% but single-family permits rose 2.2% to a 562,000 level, the highest since June 2008, while multifamily permits dipped 10.6% from an unusually high level in September. The October multifamily permit level is virtually the same as the third quarter average, suggesting rental production will continue moving toward the 275,000 annual level.

The Sandy storm effects did reduce construction activity in the last few days of October, demonstrated by a 21.3% monthly decline in single-family starts in the Northeast. These starts will be regained in future months as well as some additional construction activity replacing the destroyed homes.

The continued increase in housing construction and permits reinforces the trends in the NAHB/Wells Fargo Housing Market Index, which has increased for seven consecutive months and now stands at a six year high. The annualized starts levels for the previous three months are slightly ahead of NAHB forecast for the third quarter and the October rate is well ahead of the forecast for the fourth quarter. The better than expected housing sector performance is due to continued low mortgage rates, a better than expected increase in house prices and a significant amount of pent up demand that has finally begun to release itself. Policy uncertainties around debt and deficit reduction efforts along with likely changes to mortgage lending rules have kept a lid on any greater housing expansion.

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