July Housing Starts and Permits

KEY DATA: Starts: +22.6%; 1-Family: +8.2%; Multi-Family: +58.4%; Permits: +18.8%; 1-Family: +17%; Multi-Family: +22.5% 

IN A NUTSHELL: “When it comes to housing, the recession is well in the rear view mirror.”

WHAT IT MEANS:  Another housing report, another sign that this sector is leading the way back toward a more normal economy.  Actually, there is nothing “normal” about the housing sector.  Instead, we are talking boom times.  Housing starts soared in July, led by an enormous rise in multi-family construction.  This segment tends to have large ups and downs, but a nearly sixty percent jump is well beyond large.  Thus, don’t be surprise if there is a drop in multi-family starts in the August or September numbers.  That would not be a sign of weakness.  As for the key single-family segment, it is strong as well, just not out of control. For the first seven months of this year, total housing starts are up nearly five percent compared to the same period in 2019.  Given everything that has happened, that is amazing.  Regionally, there were increases in excess of thirty percent in both the Northeast and the South, while the Midwest and West posted gains in the six percent range.  Looking forward, permit requests skyrocketed as well, with both the single-family and multi-family segments posted robust gains.  Over the past three months, permits have exceeded starts by nearly six percent, indicating that the sector has more room to grow.

IMPLICATIONS:The reopening of the economy may not be going smoothly everywhere, but it is going incredibly well in the housing sector. Low rates and, at least to some extent the desire to live in less dense locations, have helped drive up demand and home construction is growing to meet that demand.  Since banks don’t usually consider most people on unemployment to be good borrowing risks, the mess in Washington over another stimulus bill may not have nearly as big an impact on housing as it might on consumer goods and services spending.  And with the Fed in no hurry to raise rates, the housing market has a chance to continue leading the way.  As for the economy overall, we have to wait until we get not just the August consumer data but more importantly the September ones as well to determine if a lack of stimulus funds made a major difference.  Third quarter growth is likely to be record setting.  The only issue is how big a record is set.  Housing, by itself could add hugely to growth.  It subtracted about 1.75 percentage points in the second quarter but could twice that in the third, a swing of over five percentage points.  Still,we’ve known for months that third quarter growth was going to be amazing, so we have to start focusing on fourth quarter 2020 and 2021 activity.  Where we go after the summer is up in the air. If Washington does the right thing, 2021 could be really solid.  If not, the recovery could fade. My view is that asking Washington to do the right thing is a bridge too far, so I am less optimistic than other economists.  But, as the saying goes, we shall see