Housing Starts Unexpectedly Decline in October on Top of Negative Revisions

The Census Bureau’s New Residential Construction report shows unexpected weakness in October.

 Housing Starts 

• Privately‐owned housing starts in October were at a seasonally adjusted annual rate of 1,520,000. This is 0.7 percent below the revised September estimate of 1,530,000, but is 0.4 percent above the October 2020 rate of 1,514,000. 
• Single‐family housing starts in October were at a rate of 1,039,000; this is 3.9 percent below the revised September figure of 1,081,000. 
• The October rate for units in buildings with five units or more was 470,000.  

Building Permits

• Privately‐owned housing units authorized by building permits in October were at a seasonally adjusted annual rate of 1,650,000. This is 4.0 percent above the revised September rate of 1,586,000 and is 3.4 percent above the October 2020 rate of 1,595,000.
• Single‐family authorizations in October were at a rate of 1,069,000; this is 2.7 percent above the revised September figure of 1,041,000.
• Authorizations of units in buildings with five units or more were at a rate of 528,000 in October. 

Housing Completions 

• Privately‐owned housing completions in October were at a seasonally adjusted annual rate of 1,242,000. This is virtually unchanged from the revised September estimate of 1,242,000, but is 8.4 percent below the October 2020 rate of 1,356,000. 
• Single‐family housing completions in October were at a rate of 929,000; this is 1.7 percent below the revised September rate of 945,000. 
• The October rate for units in buildings with five units or more was 302,000.  

Notes on Starts, Completions, Permits

1. Permits are a measure of builder enthusiasm, not necessarily a measure of final demand.  At housing peaks, permits are overly optimistic. At troughs, permits are overly pessimistic. Permits eventually get built, the question is when. Although some consider permits a leading indicator, permits are very wrong at turns.
2. Starts are a leading economic indicator. What get started gets built, sooner rather than later. Whereas permits are speculative, starts represent firm demand for materials and labor through completion. 
3. Completions eventually match starts with a lag.

Expectations

Econoday economists missed the mark badly this month on starts but were close on permits. 

• Starts: Actual, 1.520 Million vs 1.587 Million Expected 
• Permits: 1.650 Million vs 1.63 Million Expected 

In addition, the commerce department revised September starts lower from 1.555 million to 1.530 million.

Builders are more optimistic than buyers have been. 

Housing Starts 1959-Present

The above chart puts things in a proper long-term perspective. 

The average number of starts SAAR since 1959 is 1.431 million in a massive range of 478,000 to 2.494 million. 

Housing starts are pretty close to the long-term average.

Housing Starts, Permits, Completions Detail 

The average number of starts for 2021 is 1.575 million at a seasonally-adjusted annualized rate (SAAR).

That compares to the pre-pandemic figure of 1.589 million. Housing rebounded from a trough nowhere near as deep as the 2009 trough of 478,000, then stalled. 

Since March 2021 peak of 1.725 million SAAR, starts have been in a general decline. Permits peaked at 1.883 million in January. 

Welcome Slowdown

Hopefully, the slowdown will help take pressure off supplies, lot prices, and labor shortages.

Any slowdown is especially welcome in this corner as we have purchased lots and are about ready to build a new house. 

Thanks for Tuning In!

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