Housing Starts Hit 12-Year Low; Multi-family to the Rescue

Housing starts in August hit the lowest level on an annualized basis since July 1995.

The U.S. Census Bureau and the U.S. Department of Housing and Urban Development released a joint report on Wednesday showing that privately owned housing starts in August were at a seasonally adjusted annual rate of 1,331,000. This is 2.6 percent lower than the annualized and revised July estimate of 1,367,000 starts and is down a huge 19.1 percent from the revised August, 2006 rate of 1,646,000.

The news would have been even worse if it were not for a substantial increase in activity in multi-family housing starts. Construction on projects with five or more units began at an annualized rate of 311,000 which was an increase of 16.5 percent over July figures and 23.9 percent from August of 2006. Single family home starts totaled 988,000, off 7.1 percent since July and 27.1 percent year-over-year.

Building permits were issued, in those areas requiring them, at a seasonally adjusted annual rate of 1,307,000 in August. This is 5.9 percent below the revised July rate of 1,389,000 and is 25.5 percent lower than the revised August 2006 rate.

Again, multi-family construction pulled up the overall averages with permits for projects with five or more units up 0.3 percent since July and down 12.0 percent since August, 2006. Single family homes were permitted at a rate 8.1 percent lower than in July and 27.9 percent lower than in August 2006.

There were 1,132,000 units under construction in the end of August. 410,000 of these were in the five plus unit project category The total is 1.2 percent lower than in July and 15.6 percent below August 2006 figures.

The number of outstanding permits (where permits have been pulled but construction not yet started) also declined. Whether this is because builders are no longer pulling permits until they actually have their shovels ready or maybe even a purchase and sale contract in hand or whether they are merely drawing down on existing permits is impossible to tell. In any case, nationwide there were 195,300 permits for which construction had not begun at the end of August, a -0.9 percent change from July and -14.9 percent from August, 2006.

National Association of Home Builders (NAHB) President Brian Catalde, a home builder from El Segundo California, commented on the Census report; "Today's report is very much in line with what builders are reporting in our own surveys - that they are cutting back on new production and focusing on reducing their inventories by offering a variety of incentives to boost sales and limit cancellations."

"The housing market is still contracting, but yesterday's action by the Federal Reserve to cut the federal funds and discount rate calmed the financial markets and sent a message to American consumers that our central bank intends to ensure that the economy continues to move ahead," said NAHB Chief Economist David Seiders. "This will help to support housing, especially if the Fed takes further action in the months ahead. We expect starts and permits to bottom out by mid-2008 before a systematic recovery process gets underway."

NAHB issued a quarterly report on builders' confidence in the condo and multifamily housing market on September 20 but their regular monthly report on overall builder confidence had not materialized by press time.

The report on builder confidence in the condo market showed that the Multifamily Condo Market Index (MCMI) lost 14 points in the second quarter of 2007 to stand at 18, down 14 points from one year ago and its lowest point since NAHB created it five years ago.

The MCMI like the monthly report is derived from a quarterly survey of multifamily builders and developers, in which their responses are rated on a scale of 1 to 100. A score of 50 generally indicates that the number of positive responses is about the same as the number of negative responses.

According to the index, multifamily builders do not expect improvement in the condo sector through the end of the year. The index gauging condo builders' expectations for the next six months declined to 26.3 in the second quarter of 2007, compared with 33.6 at the same time a year ago.

On the positive side, multifamily builders did report improvement in traffic of prospective buyers in the second quarter: The index tracking this measure of demand jumped 10 points, up to 36.8 in the second quarter, compared with 26.8 in the second quarter of 2006.

"The problems in the mortgage market are rattling consumer confidence in for-sale housing at the same time that the condo sector is trying to shake off excess inventory in a lot of markets," said NAHB Chief Economist David Seiders. "That combination is delaying any recovery in the condo sector."