October Housing Starts and Permits

KEY DATA: Starts: -2.8%; 1-Family: +4.2%; Multi-Family: -15.4%; Permits: +4.8%

IN A NUTSHELL:   “Home building is holding in and with permits rising, it looks like additional construction could be on the way.”

WHAT IT MEANS:  Builders have become quite optimistic, but the real question is: Are they translating that good feeling in action?  In October, at least, that just didn’t happen in all segments of the market.  Housing starts fell, but that was due to a huge drop in the very volatile multi-family segment.  That is not that unusual.  Single-family construction rose to its second-highest level since spring, 2008.  Of course, the housing bubble had already burst by then, but at least we are moving forward.  We still have a long way to go, though, before we get back to solid levels.  Still, so far this year, starts are up by nearly 10% compared to the first ten months of 2013.  In any event, permit requests are running a little ahead of starts causing the number of units permitted but not started to jump.  That permit excess implies that building activity should start ramping up in those areas not covered with snow or ice.

MARKETS AND FED POLICY IMPLICATIONS: The jump in the National Association of Home Builders index signaled growing confidence in the housing sector and low rates are leading to growing mortgage applications, so it is just a matter of time before builders start putting more shovels in the ground.  That permit request are outpacing starts just reinforces that view because builders stopped speculating a long time ago.  That doesn’t necessarily mean we will a large increase in November.  The massive snowstorms and deep freeze will probably temporarily slow things down.  But housing is moving forward and that is what is important.  For the Fed members, this type of report allows everyone to sit around and do nothing.  The starts numbers are neither weak, nor strong, nor not even just right.  They are just another sign of an economy that has yet to truly break out to the upside.  As for investors, I guess if you don’t set a new record on any given day, it is a disappointment so maybe record setting is the key driving force.  It cannot be that the U.S. economy is so strong and the world economy is looking so good that happy days are here again.