Data on September housing starts revealed the impact of the hurricanes that hit the mainland in South Texas and Florida. Construction of single-family homes fell by 4.6% in the month to a seasonally adjusted annual rate of 829,000 units. Construction of multifamily units dropped by a slightly higher percentage, down 5.1% to 298,000 units. They brought total housing starts to just 1.127 million units (annual rate), the lowest level of activity in a year.
But, as indicated in the chart above, single-family starts remained within the range they have maintained over the last year — that is, an annual rate between 800,000 and 875,000 units.
Although housing starts fell in three of the four U.S. regions, the decline in the South region (which includes both Texas and Florida) was the second largest among the regions. The Midwest region led with the sharpest drop, with starts dropping by more than 20 % from August 2017.
The increase in the West brings its share of the nation’s activity to 31% — up from 26% a year ago. This gain comes at the expense of the South, which generated more than half of the housing starts in September 2016, and which is down to 47% this year.
Contrasting the relatively flat pattern in single-family starts, construction of multifamily units has been in freefall since the beginning of the year. While builders started construction of multifamily houses at a rate of 460,000 in December 2016, that figure was down to 298,000 units last month. This rate is 35% lower than it was nine months ago.
The strength in multifamily construction over the last few years appears to have evaporated. The slowdown in construction activity is the result of an excess of rental units, as the vacancy rate in the second quarter was 1% higher than the prior two years. Nearly one in 10 rental units was vacant in the second quarter (9%), up from an average of 7.8% previously. As such, rising vacancy rates discourage builders from engaging in the construction of more units.
Mortgage rates dropped marginally last week to 3.88% — 3 basis points below the prior week. This is the first decline in more than a month, although it does not necessarily signal a reversal in the expected continuation of rising interest rates.
Despite the low growth of the U.S. economy, it is expected that the Federal Reserve Bank will raise interest rates at least one more time this year, plus several times in 2018. This action will have the natural effect of causing further increases in mortgage rates this year, and very likely in 2018.
Manuel Gutierrez, Consulting Economist to NKBA
Explanation of NKBA’s Economic Indicators Dashboard
The dashboard displays the latest value of each economic indicator with a colored triangle that highlights visually the recent trend for each of the drivers. “Green” is a positive signal, indicating that the latest value is improving; “Yellow,” as it’s commonly understood, denotes caution because the variable may be changing direction; “Red” indicates that the variable in question is declining, both in its current value and in relation to the recent past.
Note that all the data, except for “mortgage rate” and “appliance-store sales” are seasonally adjusted and are represented at annual rates.
Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately owned homes (excludes rentals, etc.). The data are in billions of dollars and are issued monthly by the U.S. Department of Commerce.
Single-Family Starts. This is the number of single-family houses for which construction was started in the given month. The data are in thousands of houses and are issued monthly by the U.S. Department of Commerce.
Existing-Home Sales. These data are issued monthly by the National Association of Realtors, and capture the number of existing homes that were sold in the previous month.
High-End Home Sales. This series are sales of new homes priced at $750,000 and higher. The data are released quarterly by the U.S. Department of Commerce, and are not seasonally adjusted. Thus, a valid comparison is made to the same quarter of prior year.
Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.
Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.
Building-Materials Sales. These data, released monthly by the Department of Commerce, capture total sales of building materials, regardless of whether consumers or contractors purchased them. However, we should caution that the data also includes sales to projects other than residential houses.
Appliance-Store Sales. This driver captures the monthly sales of stores that sell mostly household appliances; the data are stated at an annual rate. We should not confuse this driver with total appliance sales, since they are sold by other types of stores such as home centers, for instance.
We hope that you find this dashboard useful as a general guide to the state of our industry. Please contact us if you would like to see further detail.
