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Takeaway: Weakness in August offsets strength in July. Bigger picture, SF is grinding higher at a GDP-like pace of low-single digit growth.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

SOFT STARTS CONTINUE TO DIVERGE FROM STRONG SENTIMENT - Compendium 091814

Today's Focus: August Housing Starts & Permits

The Census Bureau released its monthly Housing Starts & Permits data for August this morning.

Total New Home Starts declined -161K, or  -14.4%, sequentially vs positively revised July Data (revised +25K to 1117K) – the largest month over month decline since January of 2007.

With single-family starts up just +2% YoY on average YTD vs. multi-family up 21%the concentration in construction activity, and the predominate driver of the recovery in starts, remains well defined. 

  • Total Starts:  Total housing starts re-breached the 1MM level to the downside, declining -14.4% MoM (-161K) to +956K SAAR with July revised to +1117K from +1093K SAAR.  Multi-family, which led the upside in July, reversed to drive the downside in the latest month.    
    • Single Family Starts:  SF starts declined -16K MoM (-2.4%) to +643K, essentially in-line with the trailing average. 
    • Multi Family Starts:  MF starts declined -145K MoM (-31.7%) to +313K  
  • Total Permits:  Total Permits declined -59K MoM (-5.6%) to 998K with the -54K decline in multi-family driving the drawdown. Notably, the outsized increase in multi-family permits in July failed to carry-over into the August starts figures.   
    • SF Permits:  Single Family permits declined -0.8% MoM (-5K) to 626K.  Inclusive of the negative revision to July, this marks the 2nd month of decline in SF permits.  The trend in permits continues to suggest minimal upside for the forward starts data
    • MF Permits:  Multi-family permits declined -54K (-12.7%) in August to 372K – the third decline in the last four months. 

NAHB HMI vs SF Starts:  Yesterday’s sequential increase in the NAHB HMI is at odds with the fall in SF starts in August and the growing disconnect between builder confidence and SF construction activity over the last few months remains stark.  


As a reminder, there are three factors principally responsible for the ongoing weak performance for housing. First, QM rules that took effect early this year are having a suppressing effect on credit availability. Second, institutional investor demand for properties is waning sharply. Third, affordability dynamics have swung sharply; whereas 12-18 months ago there was a strong asymmetry favoring homeownership, today renting vs owning are close to a toss-up.

SOFT STARTS CONTINUE TO DIVERGE FROM STRONG SENTIMENT - SF Starts   Permits TTM

SOFT STARTS CONTINUE TO DIVERGE FROM STRONG SENTIMENT - SF Starts   Permits LT

SOFT STARTS CONTINUE TO DIVERGE FROM STRONG SENTIMENT - SF starts vs NAHB

SOFT STARTS CONTINUE TO DIVERGE FROM STRONG SENTIMENT - Total Starts LT

SOFT STARTS CONTINUE TO DIVERGE FROM STRONG SENTIMENT - MF Starts   Permits TTM

SOFT STARTS CONTINUE TO DIVERGE FROM STRONG SENTIMENT - MF Starts   Permits LT

SOFT STARTS CONTINUE TO DIVERGE FROM STRONG SENTIMENT - SF   MF Starts MoM Change

About Housing Starts & Permits:

The US Census Bureau records the number of new housing units that have obtained permits for construction and those that have begun construction. This data includes new buildings intended primarily as residential units. The US Census Bureau defines a start as, “Start of construction occurs when excavation begins for the footings or foundation of a building.” 

Joshua Steiner, CFA

Christian B. Drake