The month of August saw new home starts increase 10.5% over the previous month, far surpassing economists estimates. In fact, the consensus estimates pointed to an expected decrease in new home starts. While the majority of the increase came from notoriously volatile multi-family construction (numbers for this segment of housing tend to fluctuate widely from month-to-month due to the time it takes to complete these larger projects), the U.S. still experienced a 4.3% increase in single-family new home starts.
Most economists (presumably the same ones who predicted the decrease) downplayed the gains by pointing to the multi-family increase as inconsistent and not a clear indication of direction. Oddly, most did not address the unexpected increase in single-family new construction leaving us to wonder why their expectations were so far off from the actual results. Since the results in the single-family segment represented 75% of the results, it seemed to indicate a significant increase. To us, it appeared as good news for the housing market, though most economists were not willing to make that statement.
In addition, permits for new residential construction increased 1.8% in August pointing to further increases in housing starts next month. Here, however, we do see the impact of the multi-family segment as those permits increased 9.8% while single-family permits decreased by 1.2%. The underlying message seems to say that construction tied to investment and rental properties is gaining strength. Because these numbers tend to fluctuate greatly, we are holding off on saying that the rental market is growing significantly. Other indications exist that the rental market remains tight, absorbtion of new units and occupancy remains high, which would support further construction of these types of rental properties.
For more information about the importance and significance of the New Home Starts report, please see our previous post on the topic by clicking here.