US: August Housing Starts edged lower - Nomura

Analysts at Nomura offered a full review of US August Housing Starts that edged lower.

Key Quotes:

"Single-family starts point to continued gradual recovery, but hurricanes to distort view

August housing starts came in at an annualized pace of 1180k, down 0.8% m-o-m from an upwardly revised 1190k in July, mostly in line with expectations (Nomura and Consensus: a 1.6% increase to 1174k). Building permits authorized in August increased 5.7% m-o-m, above expectations (Nomura: +1.6%, Consensus: -0.8%).

Single-family starts increased 1.6% m-o-m to an annualized pace of 851k and point to continued gradual improvement given steady demand from consumers and lean inventories of homes for sale. Multi-family starts, on the other hand, appear to have peaked. In August, multi-family starts dropped 6.5% to an annualized pace of 329k and materially lowered total housing starts, following an upwardly revised 2.2% decline in July. Note that the rental vacancy rate has picked up recently, reflecting slowing activity in the multi-family housing market.

The Census Bureau reported that hurricanes Harvey and Irma did not significantly affect the permit data collection process. However, information on the status (starts or completion) of authorized construction projects in FEMA-designated disaster counties was collected for only about 60% of the cases. The cases for which the information was not collected were considered as “no change” in status (i.e., no starts or completion). Typically, this information is collected for almost 95% of the cases sampled for the Survey of Construction.

Indeed, multi-family housing starts in the Southern region declined 35% m-o-m in August, but this metric tends to be volatile. Excluding multi-family structures, singlefamily housing starts in this region rose 1.3% m-o-m. It is possible that increases in housing starts in states that did not sustain heavy damage from Harvey were strong enough to counteract any negative impact from Harvey. By contrast, building permits for single-family homes in the South dropped by 4.6% m-o-m, suggesting the potential disruptions associated with Hurricane Harvey. Those mixed signals increased uncertainty around the impact from hurricanes on housing data in August.

Looking ahead, we could see a larger impact from Harvey as more unreported information is gathered. Further, Hurricane Irma, which brought widespread disruptions to construction activity in Florida, may distort the September estimates of housing starts. That said, the impact of Harvey and Irma in September depends on the fraction of cases collected in disaster areas. In addition, as rebuilding activity picks up, there may be gradual boost to spending on residential construction and home improvement in coming months. 

GDP tracking update: The annualized pace of single-family housing starts in August was mostly in line with our expectations. After rounding, our Q3 tracking estimate was unchanged at 2.0% q-o-q saar. June single-family housing starts were lowered slightly, but the impact on our Q2 tracking estimate was muted, which remains unchanged at 3.2%."