By the Numbers

Featuring brief segments of economic analysis from our senior economist Michael Bazdarich, PhD.

Sign up to receive email updates as new reports are released.

No Real Reprieve in August Housing Starts Report

Headline housing starts rose a healthy-sounding 9.2% in August, on top of a +0.5% revision to the July estimate. Single-family housing starts rose 1.9%, with July estimates revised by -0.2%. Single-family starts are clearly the more "watchable" measure within this report, and while August starts showed an increase, that gain is only a slight offset to declines shown earlier in the year. On net, housing activity looks like it is pausing, after growing decently over 2014-17.

For other data, we look at "control" or "core" measures—beneath the headline measure—mostly because of especially high volatility within the components excluded from the control/core measure. For housing, while it is true that multi-family starts are especially volatile, it is also true that single-family units generally involve much higher dollar-per-unit totals than do multi-family builds, which further increases the importance of the single-family starts measure.

The chart shows single-family activity: permits, starts and new-home sales. All three have looked soggy lately, and today’s August data don’t change the picture. Again, the August gains leave single-family starts well below the levels prevailing between November 2017 and May 2018. Similarly, single-family permits have been trending down throughout 2018. And all through the last few years, new-home sales have failed to keep up with single-family builds, leading to rising inventories of new-home sales, which now stand at nearly six months’ worth of sales.

Meanwhile, despite a 29.3% (non-annualized) gain in August, multi-family starts still look to be on a downtrend. Here too, the August gains only partially offset declines over preceding months, and here too, multi-family permits have been declining steadily over the last five months, continuing this downtrend in August.

None of this spells doom for housing, and it probably has little import for home prices. Our focus is more on GDP growth, and the recent "pause" in homebuilding suggests that housing—and construction in general—will not provide any boost to GDP growth in the quarters ahead. In contrast, homebuilding boosted GDP growth by about 0.3 percentage points through much of the current economic expansion.

Sales and Starts of New, Single-Family Homes
Sales and Starts of New, Single-Family Homes

Source: Census Bureau. As of 31 Aug 18

Michael Bazdarich

Product Specialist/Economist

Mike brings more than 42 years of experience to his position. "By the Numbers" will address economic data releases that are pertinent to a broad range of investors.

Prior to joining the Firm in 2005, Mike ran his own consulting firm, MB Economics. He earned his PhD in Economics at the University of Chicago.

Sign up to receive email updates as new reports are released.

© Western Asset Management Company, LLC 2019. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK and EEA countries as defined by the FCA or MiFID II rules.