U.S. housing starts eases in August, homebuilding to be on modest upward trajectory in coming months

The rate of U.S. homebuilding eased in August. The headline figure of housing starts came in significantly weaker than market projections. In August, housing starts dropped 70,000 units to 1,142k annualized, as compared with expectations of a decline to 1,190k new units. Revisions to recent two months’ data were majorly unchanged, adding 1k units to July’s strong tally, and were 9k higher in June, noted TD Economics in a research note.

The fall was mainly seen in the single-family sector, which recorded a decline of 46,000, while the rate of multifamily homebuilding also dropped by 24,000, subtracting from the overall tally.

Meanwhile, building permits also came in below market projections, dropping by 5,000 units to 1,139k annualized in August. The full month decline was seen mainly in the volatile multifamily sector, which fell by 31,000, whereas the number of single-family permits increased moderately by 26,000 in August.

Region wise, increases were seen in the Midwest, Northeast and West which recorded an increased of 9k, 10k and 5k respectively. However, the gains did not help much to increase the overall tally as a severe drop in the South (-94k) overwhelmed gains in the remainder of the country.

The August report was relatively disappointing. A temporary reversal in the housing starts was widely anticipated after the sharp increase recorded in the prior two months; however, the decline was worse than expected with starts dropping through the six-month and the 12-month moving averages. Furthermore, the pullback in singles construction, earlier on an upward trend, just added to the disappointment.

However, certain details of the report were quite encouraging, giving a positive outlook for housing construction. The total decline in permitting activity was seen in the volatile multifamily sector, whereas the single-family sector recorded the biggest gain witnessed in nearly four years. Furthermore, the total weakness in the new homebuilding was not broad, accounted by entirely by the South, said TD Economics.

Nevertheless, the August report is not expected to influence the U.S. Fed into action. However, the details of the report indicate towards an encouraging scenario of the near-term outlook. This implies that data in the months ahead might affirm the view that homebuilding in the U.S is on a modest upward trajectory, added TD Economics.