New housing construction in the U.S. rose to the highest level in nine months according to a government report released Thursday. But the good news about homebuilding was tempered with a decline in single family construction.
The Commerce Department said housing starts rose 1.5 percent in August from July to an annual rate of 598,000 units, the highest pace since November 2008. The pace of homebuilding in August was 30 percent below the 849,000 unit pace established a year ago.
All of the increase was due to a large 25.3 percent jump in multifamily starts which registered 119,000 annualized units in August. Single family home construction fell 3 percent last month to an annualized 479,000 unit pace, after five consecutive monthly increases. Single family construction in August is 22 percent below its year ago pace. Housing permits rose 2.7 percent in August from a month earlier. Housing permits are usually a reliable indicator of future new residential construction activity.
The drop in single family starts was disappointing news for the home building industry and likely reflects builders who are unwilling to dig holes in the ground amid uncertainty over whether the Obama administration’s $8,000 tax credit for first-time buyers will be extended beyond November. The tax credit combined with historically low mortgage rates have helped steady the housing sector this year following the worst housing recession since the Great Depression.
In other housing news, the National Association of Home Builders, NAHB, reported that its housing market index rose to 19 in September compared with an index value of 18 in August. The index is considered a leading indicator of home building activity and has risen steadily since the beginning of the year. However, a healthy home building marketplace is usually associated with an index that hovers above 50.
Both the housing starts and the housing market index reports indicate a steady, but modest, rise in home building activity this year. However, builders remain cautious going forward and for good reason. Future home sales could slow if the federal homebuyer tax credit is permitted to expire in November. Further, the market is expecting a meaningful rise in foreclosure filings over the next several years due to planned rate resets on option ARM and interest only mortgage loans. A rise in foreclosures promises to increase the supply of existing homes which, in turn, inhibits new home building.