Led by the strongest gain for single-family construction this, year, the pace of housing starts edged up 0.9 percent in August, the Census Bureau and Department of Housing and Urban Development reported Wednesday. Total housing permits though declined 4.8 percent despite a surge in filings for single-family homes.
Builders broke ground in August on new homes at the seasonally adjusted annual rate of 891,000, up from a revised 883,000 in July and filed for permits at the seasonally adjusted annual rate of 918,000, down from 954,000 in July. Economists surveyed by Bloomberg expected the report to show a rate of 915,000 starts and 950,000 permits.
The rate of housing permits for July was revised up to 954,000 from the originally reported 943,000 and the pace of July housing starts was revised down to 883,000 from the originally reported 896,000.
According to the report, builders completed homes at the rate of 769,000 homes in August up slightly from 767,000 pace in July. The July completion rate was revised down from the originally reported 774,000
Permits for single-family homes represented 68.3 percent of all permit activity in August, the highest share since September 2011. The rate of 627,000 single-family permits in August was the strongest since May 2008.
The rate of single-family starts rose to 891,000 in August from 883,000 in July, the third month-month gain in the last four months. Single-family starts represented 70.5 percent of all starts, the second highest share in the last year. Single-family starts were 71.7 percent of all starts in August 2012 and 72.5 percent two months ago in June.
The gain in single-family starts overwhelmed the drop in multifamily activity. The rate of starts for multifamily homes fell 33,000 in August to 263,000, an 11.1 percent decline. The pace of multifamily permits dropped 54,000, or 15.7 percent in August to 291,000.
The gain in both single-family permits and starts came amidst signs of improving builder confidence. According to the National Association of Home Builders’ Housing Market Index (HMI), builder confidence in August was 58 (on 100 point scale), its highest level since November 2005. The index for September, reported Tuesday was unchanged at 58, the first time since April the index has not shown a month-to-month improvement.
Despite the month-to-month improvement in single-family activity in August, the longer term trend continues the shift in building activity to multifamily housing. Single-family starts have averaged about 67.6 percent of all starts in the last 12 month, down from 69.3 percent in 12 months ended August 2012 and 74.7 percent in the previous 12 months.
In the last 12 months, the average single-family permits averaged 63.8 percent of total permits, down slightly from 64.1 percent in the 12 months ending August 2012 and 69.7 percent in the 12 months ending August 2011
In July, according to a separate Census-HUD report, new homes totaled 394,000, 176,000 fewer than the 570,000 completions that month. New home sales for August will be reported next week.
The pace of total starts rose in August in only one of the four Census regions, improving by 47,000 in the South to 439,000 from 392,000 in July. Builder confidence in the South, according to NAHB’s HMI, rose in August to its highest level since April 2006.
The rate of total starts fell 25,000 in the West to 204,000, dropped 9,000 in the Northeast to 101,000 and slipped 5,000 in the Midwest to 147,000 despite record high builder confidence in the Midwest.
Single-family starts rose in all regions led by a gain of 22,000 in the West to a seasonally adjusted pace of 148,000. In each of the South and the Midwest the rate of single-family starts rose 7,000 to 317,000 and 106,000 respectively and in the Northeast the pace went up 5,000 to 57,000.
The annualized rate of all permits plunged 46,000 in the South to 413,000 in Augusts and fell also in the West, dropping 9,000 to 219,000. The rate of permit filings for all homes rose 12,000 in the Northeast to 125,000 and improved 7,000 in the Midwest to 161,000.
The pace of permits for single-family homes rose in three of the four regions led by a gain of 8,000 in the South to 330,000. The rate of permit filings improved 7,000 in the West to 140,000 and 3,000 in the Midwest to 107,000. The pace of single-family permit filings was unchanged in August at 50,000.
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In the backdrop of a slow growing economy, Fitch Ratings projects the housing recovery will expand this year and the next-just not at an “explosive” pace, according to a report.
The forecast for 2013 is for existing-home sales to increase 7.5 percent and for new home sales to rise by 22 percent. Meanwhile, single-family starts should grow 18 percent, and multifamily starts should jump 25 percent.
In 2014, the improvements should continue but at a slower rate, with multifamily starts forecast to rise 9 percent and single-family starts to increase 24 percent. Existing sales will slow to 5 percent growth, and new home sales will stay on course with a 24 percent increase.
According to Fitch, the market faces housing challenges such as negative equity, strict mortgage qualification standards, lot shortages, materials and labor costs pressuring home prices, and excess supply in certain markets due to foreclosures.
In the midst of the challenges, however, Fitch pointed to factors supporting the market, such as “still-attractive” home prices and low mortgage rates.
While the recent surge in rates is not expected to stop the recovery, Fitch warned that if rates were to make another leap from current levels or if credit terms became more constrained, then Fitch’s forecast for this year would become more pessimistic.
When addressing inventory constraints on a national level, Fitch also cautioned that that this could change.
“[A] fragile economy slipping into recession could inflame issues, such as negative buyer psychology and home price erosion relatively quickly, which can lead to a falloff in demand and bloated inventories,” the report stated.
Interestingly, Fitch speculates banks could be in control of a “sizeable amount of housing inventory” based on data from the National Association of Realtors, which showed only 15 to 20 percent of foreclosures during the downturn hit the market in 2008 and 2009. This leaves the remaining 80 to 85 percent of foreclosures as bank-owned properties.
According to the report, banks currently offer “top dollar” at auctions to keep their distressed properties, “frequently paying above assessed value.” The rating agency stated banks would rather hold distressed properties rather than sell them and suffer losses, and they’re expecting the properties to appreciate in the next couple of years.
After a somewhat slow first quarter, the national housing recovery took the pace up a few notches in Q2, Zillow reported.
According to the company’s second-quarter Real Estate Market Reports, the U.S. Zillow Home Value Index (HVI) rose to $161,100 as of the end of June—up 2.4 percent quarter-over-quarter and 5.8 percent year-over-year.
The second quarter’s increase was the largest annual gain since August 2006 and the largest quarterly gain since the fourth quarter of 2005—as well as the second-largest quarterly gain since 2004. National home values rose only 0.25 percent during the first quarter.
While home value appreciation accelerated in Q2, it also spread to more areas across the country, reaching markets in the Northeast, Midwest, and Southwest that had previously had trouble keeping pace.
All of the top 30 largest metros covered by Zillow saw annual appreciation as of the end of the second quarter, and Zillow believes all are coming back from their respective troughs.
Metros with the largest annual gains in Q2 included Sacramento (29.5 percent), Las Vegas (29.4 percent), and San Francisco (25.5 percent).
While some areas—particularly those where annual appreciation is approaching 30 percent—may seem like they’re experiencing a bubble, Zillow senior economist Svenja Gudell explained that kind of market behavior won’t last.
“Investors are starting to pull out of some markets and regular buyers are coming back, and more inventory is slowly but surely coming on line, both of which will contribute to slowdowns in appreciation,” Gudell explained. “Additionally, in some overheated markets, rapid home value increases coupled with rising mortgage rates will lead to housing prices and financing costs outpacing local income growth, which will also contribute to a moderation of the market.”
Over the next 12 months, Zillow expects home values to rise another 5 percent. Of the 30 largest markets, 29 are expected to see appreciation, with New York being the only exception.
In the rental market, national rents fell quarter-over-quarter by 0.5 percent to $1,282—the first quarterly decline after nine consecutive quarters of rents either increasing or remaining flat. Year-over-year, national rents were up 1.6 percent as of the end of the second quarter.
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