Today’s Housing Starts for the month of September came in stronger than expected at a seasonally adjusted annualized rate (SAAR) of 1.206 million (expectations were calling for just 1.142 million). At this level, starts are now just 5K off their cycle high of 1.211 mln from June. While starts saw a nice upside beat, Building Permits missed expectations by a relatively large amount coming in at a SAAR of 1.103 million versus estimates for a rate of 1.170 mln. As shown in the second chart, building permits have now pulled back to their range of earlier this year following the spike we saw in May and June ahead of the expiration of tax credits in New York for multi-family units in New York.
The table below breaks down this month’s report on a regional basis as well as type of unit. In the case of Housing Starts, the overall headline number was strong this month, but almost all of it was driven by multi-family units which increased 18.3% relative to August. Single-family units, on the other hand, increased only 0.3%. On a regional basis, strength in September was confined to the northeast and west, which both saw m/m gains of more than 20%. Strength in the northeast was likely a pass through of the strong permits numbers we saw back in Q2. Going forward, we would expect this number to see a retreat similar to the pullback we have seen in permits for the region over the last few months. Elsewhere, starts in the south were practically unchanged while in the midwest they declined by more than 12%. Regarding Building Permits, declines this month were nearly across the board, but unlike Housing Starts, where multi-family units were stronger, here we saw more strength in single-family units which were only down 0.3%.
With Housing Starts right near their cycle highs, one might wonder if the current numbers are as good as it gets or is there little room for improvement? The answer to that question is no. First, looking at the top chart above, even though Housing Starts are at a cycle high, they are still well below their cycle low from the recession prior to the last one. Additionally, from a long-term perspective Housing Starts are still well below their historical average let alone highs from prior economic expansions. As shown in the chart below, going back to 1959 Housing Starts have averaged a SAAR of 1.445 million, which is nearly a quarter of a million more per month than September’s rate. Nevermind that these numbers don’t even take population growth into account.