Housing starts in US soften in August, but still up 16.5% relative to a year ago

Housing starts fell to 1,126k units (annualized) in August, coming in below market expectations for a 1,160k print. Negative revisions to the prior month's tally shaved 45k off July's headline, lowering it from 1,206k to 1,161k.         

The pace of construction moderated in both multi and single-family segments. Single family starts edged lower by 23k on the month, with homebuilders breaking ground on 739k units in August. Multifamily starts also posted a modest decline, falling by 12k units. 

"Following a sharp fullback in July, building permits partially rebounded in August, rising by 40k units to 1,170k. This was slightly above market expectations for 1,159k. Housing starts declined in the Northeast (-55k), Midwest (-17k) and West (-3k). Meanwhile, the pace of homebuilding continued to rise in the South (+40k), where starts increased for the third consecutive month", says TD Economics.

Despite the modest slowdown in building activity in August we would refrain from labelling this report as disappointing. Indeed, the pace of new residential construction remains constructive, with housing starts running nearly 17% above their year ago level.  Other indicators, such as the gain in building permits in August and the rising level of confidence among homebuilders in September also point to a steady upturn in the housing market.

Rising confidence among homebuilders is not surprising given the multiple tailwinds to the housing market, such as brisk pace of job creation, improving household finances, still-low borrowing costs and somewhat easier lending standards.

"The improving pace of household formation also suggests that underlying housing demand will continue to support residential construction growth going forward. According to the Census Bureau, over 1.5 million households were created between the second quarter of this year and the same quarter a year ago. With new construction running behind this rate, vacancies continue to move lower and make a strong argument for a pickup in activity the months and years ahead", notes TD economics.