After a string of optimistic data on the nation's beleaguered real estate market, a report today showed that new home construction came in weaker than expected. The Commerce Department reported that August housing starts increased 1.5 percent from the previous month at an annual rate of nearly 600,000 units—a nine-month high. The overall increase, however, fell significantly short of the 2.9 percent gain that economists had predicted. At the same time, single-family home starts—a key data point—fell 3 percent from the previous month. Here are four things you need to know about the report:
1. Multifamily starts jump: The rise in overall home construction activity was driven by a surge in multifamily building; multifamily starts jumped more than 25 percent from July. Economists at Goldman Sachs said in a report that the bounce isn't terribly surprising, given that July's data were "just a hair above the all-time low." The multifamily sector can consist of condominium, townhouse, or apartment projects. And since the multifamily figures can be influenced a great deal by a few large construction projects each month, economists don't consider it the most important data point in the series, says Mike Larson of Weiss Research.
2. Single-family starts drop: Single-family building starts—which make up the bulk of home construction—provide a better gauge of the industry, Larson says. They were off 3 percent for the month. Still, Larson says the single-family decrease isn't cause for alarm, in light of the data's recent strength. "We've come a long way in a short period of time, with single-family starts up 34 percent in a span of just six months," Larson said in a report. "So it's no surprise to see builders take a breather."
3. Tax credit expiring: Larson also notes that the looming expiration of Uncle Sam's $8,000 first-time home buyer tax credit—November 30 is the deadline for buyers—may have made some builders skittish about breaking ground. Not surprisingly, the home building industry is using today's data to pressure lawmakers to extend the credit. "With the $8,000 first-time home buyer tax credit set to expire at the end of November, the window is now basically closed for being able to start a new home that can be completed in time for purchasers to take advantage of that," National Association of Home Builders Chairman Joe Robson said in a press release today, after the report was released. "Builders are therefore pulling back on new construction at this time. Clearly, Congress must act now to extend the tax credit if we are to keep the market moving toward a recovery."
4. Trend intact: Despite the monthly decline, economists at Nomura Global Economics noted that the single-family data remained stronger than it had been in other months. "Those starts were still higher" than any other month from November 2008 to June 2009, they said in a report. And Ian Shepherdson, chief U.S. economist at High Frequency Economics, says the report represents further evidence that the housing market is stabilizing. "Stepping back from the month-to-month noise, a clear uptrend is emerging in the single-family sector, though the current levels of activity remain some way below even the immediate pre-Lehman level, which was already very depressed," Shepherdson said in a report. "Still, at least the numbers are moving in the right direction."