US Housing Starts Flat in August; Segment Likely to Slow Further

US housing starts fell in August for a second straight month, and homebuilding is likely to slump further in September and beyond in the aftermath of hurricanes Harvey and Irma. Labor and resources will likely be reallocated to rebuilding efforts in those areas most impacted by the two storms over the coming months.

Housing Starts, Permits & Completions 

US housing starts dropped 0.8 percent to a seasonally adjusted annual rate (SAAR) of 1,180,000 units in August. Single-family starts accounted for 851,000 units, which is 1.6 percent above the revised July figure of 838,000. Starts for the volatile multi-family housing segment dropped 6.5 percent to a 329,000 unit-pace, although multi-family permits jumped 19.6 percent to a near 500,000-unit pace in August.

Privately-owned housing completions were 10.2 percent below July’s estimate of 1,075,000 units, and single-family permits were down 1.5 percent to a rate of 800,000 units. Regional performance in August was lackluster, as confirmed by the US Census Bureau report. Seasonally-adjusted, single-family housing starts by region included: 

• Northeast: -1.5 percent (+9.8 percent last month)
• South: +1.3 percent (+2.0 percent last month)
• Midwest: -4.3 percent (-7.4 percent last month)
• West: +6.5 percent (-4.3 percent last month)

Mortgage Rates & Market Outlook 

The 30-year fixed mortgage rate dropped from 3.97 to 3.88 percent, its lowest level of 2017 and lowest level since November 2016. The National Association of Home Builders (NAHB)/Wells Fargo builder sentiment index slipped three points to 64 from a downwardly-revised reading of 67 in August. 

"The recent hurricanes have intensified our members' concerns about the availability of labor and the cost of building materials," said NAHB Chairman Granger MacDonald. "Once the rebuilding process is underway, I expect builder confidence will return to the high levels we saw this spring." 

The total scope of damage that Hurricanes Harvey and Irma caused is not yet known. However, both storms have already negatively affected home completions, which plummeted over 10 percent to a 10-month low as noted above. The percentage drop in completions was the largest since April 2013, and completions in the US South fell 22 percent—the largest drop in seven years. 

It is also worth noting that homebuilding could decline further in the aftermath of both storms. According to Census Bureau data, the areas in Texas and Florida that were hardest hit by the storms accounted for roughly 13 percent of permits issued last year. “We suspect single-family starts are set to slow,” said Mark Vitner, a senior economist at Wells Fargo Securities. “Hurricanes Harvey and Irma will also likely slow starts in coming months, as resources are redirected toward repairs and rebuilding efforts.”