US: Weakness in housing starts and permits is a bit confounding - Wells Fargo

According to analysts from Wells Fargo, given the ebullient builder sentiment reading yesterday (NAHB index), weakness in today’s housing starts and permits during the month is a bit confounding. 

Key Quotes: 

“Housing starts fell 4.8 percent to a 1.16 million-unit pace in July. Weakness was largely concentrated in multifamily, which fell 15.3 percent, while single-family slipped 0.5 percent. Permits fell 4.1 percent.”

“At first glance, today’s housing starts report appears to extend a weak string of monthly reports only interrupted by the downwardly-revised gain in June. Moreover, given the ebullient builder sentiment reading yesterday, weakness in housing starts and permits during the month is a bit confounding. Indeed, housing starts have fallen in five of the last six months. However, much of the weakness has been in the multifamily component, which should not be surprising given slowing fundamentals.”

“On a year-ago basis, overall permits are up 4.1 percent, but the gain is in single-family and multifamily units with 2-4 units, while five or more units is down.”

“At the same time, builder sentiment jumped 4 points in August to 68, which is in line with the six-month moving average, with all components registering gains during the month. In our National Association of Home Builders/ Wells Fargo Housing Market Index write up released yesterday, we noted that single-family starts have not advanced as much as the still elevated level of builder sentiment likely reflecting the shortage of lots and overall construction costs including labor.”

“The residential component of architecture billings, which is mostly apartments, jumped to its highest level in almost a year in June, intimating there is some upside.”