At first glance, a surge in new home construction last month is welcome news for an industry that has been battered over the past three to four years, but as one digs just below the surface, homebuilders have little reason to celebrate.
Housing starts jumped an impressive 10.5% in August to a seasonally adjusted annual rate of 598,000 units. That’s good news for those who hammer the nails and sell materials to the construction industry.
But much of the increase came from a 32% jump in multi-family starts, which is a very volatile and small part of new-home construction. Single-family starts were up a more modest 4.3% to a rate of 438,000 units.
Building permits, which provide a better look at how the industry may perform in the near term, increased 1.8% to an annualized 569,000, while the more important single-family, fell for the fifth-consecutive month to the lowest reading since April 2009 (see chart above).
Builder confidence has languished over the past four months, which is being reflected in a concrete way by the drop in permits for single-family homes.
More worrisome, the upward trend that began in January 2009 has reversed itself. The tax credit may have something to do with recent weakness, though permits were not impacted in the way that is currently happening when the credit expired at the end of last year.
More likely, uncertainty over the direction of the economy and the high level of foreclosures that builders must compete with are keeping traffic down at the model homes.
The silver lining: the pace of decline has been slowing. In addition, new housing makes up less than 10% of the market. Existing home sales offer a better look at what’s happening in residential real estate.
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