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Morning Report: Housing starts fall


Vital Statistics:

Stocks are lower this morning as we begin the Fed meeting. Bonds and MBS are down small.

Housing starts fell 15% MOM and 11% YOY to a seasonally-adjusted annual rate of 1.28 million, which was the lowest since June of 2020. This was way below the street estimate of 1.43 million. Building permits increased to 1.54 million which was up 7% MOM and down 3Q% YOY.

While single-family starts fell, the big story has been the collapse in multi-fam, which has fallen off a cliff recently due to high rates and a glut of new supply already under construction.

High mortgage rates continue to dampen building confidence. Rising rates and prices are causing builders to cut prices or offer incentives. We have already seen builders subsidizing mortgage loans by offering below-market rates in order maintain the sales price.

Shortages remain an issue with skilled construction laborers in short supply, along with buildable lots, transformers, and now insurance.

Recessionary pressures are increasing in housing, according to First American Financial. “Mortgage rates increased in August, which means we expect the housing recessionary pressures to continue in the near-term until mortgage rates stabilize,” First American Chief Economist Mark Fleming said. “However, industry forecasts predict that mortgage rates will moderate later in the year if the Federal Reserve stops further monetary tightening and provides investors with more certainty. Mortgage rate stability, even if the stabilization occurs at a higher level, is the key to a housing recovery.”

Some good news on the inflation front: single family rent growth dropped to a 3 year low in July, rising only 3.1%. This is a return to pre-pandemic levels of growth.

“While U.S. single-family rent growth has now reverted to its long-term average of about 3%, three U.S. metros recorded annual cost decreases in July,” said Molly Boesel, principal economist for CoreLogic. “However, because the SFRI peaked in these metros in July 2022, the annual decreases represent a plateauing of costs rather than larger weaknesses in single-family rental markets.”

“But even with the small annual decreases in rent growth,” Boesel continued, “the gains of the past few years are unlikely to be totally erased in the near future. For example, Miami recorded a 0.6% decline in annual rent growth in July 2023, but the gain since July 2020 has registered 55%.”

Tuesday: Housing Starts

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