Construction Activity Edges Up in August but Permits Tumble

By Mark Lieberman

Managing Director and Senior Economist

Highlights

  • Home building activity, measured by housing starts IMPROVED in August, led by multi-family activity;
  • The seasonally adjusted annual rate of multi-family starts ROSE 29.3 percent while single-family starts were UP 1.9 percent;
  • Permit activity, however, slowed in August to its lowest level since last September, with single-family permit DOWN 6.1 percent from July and multi-family permits down 4.9 percent. The combined month-month drop was 5.7 percent;
  • The rate of housing completions though ROSE 2.5 percent, as single-family completions jumped 11.6 percent from July, offsetting an 18.5 percent DROP in multi-family completions.

Trends:

  • The month-month 5.7 percent decline in all permits was the largest monthly drop since February 2017 6.2 percent);
  • The SAAR of both permits and starts is down since the beginning of the year; permits are off by 10.1 percent, while the rate of starts is down 3.9 percent;
  • The pace of new home completions ROSE month-month for the first time since April.

Data Source: Census Bureau and Department of Housing and Urban Development 

Image result for homebuilding

Just one day after the National Association of Home Builders reported no change in the Housing Market Index, the Commerce Department provided an explanation in a report showing weak gains in new residential activity.

The Housing Market Index, NAHB’s yardstick for builder confidence remained at a strongly positive 67 in September.

But as the index reading was released, the NAHB also excoriated the Administration’s new tariff proposals.

The proposal to impose a 10 percent tariff on Chinese imports, the organization said, “could have major ramifications for the housing industry. With housing costs on the rise, this action translates into a tax increase on housing that will rise even more significantly on Jan. 1 when the tariff rate jumps to 25 percent.”

The tariffs the NAHB statement said “is coming on top of the current 20 percent tariffs on softwood lumber imports from Canada. The lumber tariffs have already added thousands of dollars to the price of a typical single-family home.”

The tariff boost could explain why the NAHB in its builder confidence survey noted a drop in buyer traffic last month which continued into September.

Most troubling in the government data was the drop in permits which are not affected by the weather. Permit – and construction activity – is likely to increase in the aftermath of Hurricane/Tropical Storm Florence.

Over the six months following hurricanes Harvey and Irma last year, permits jumped 9 percent with a 12 percent increase in single-family permits.

Hear Mark Lieberman every Friday at 6:20 am on POTUS Morning Briefing, Sirius-XM 124. You can follow him on Twitter at @foxeconomics.

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