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By New_Deal_democrat September 20, 2017 10:39 am
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Housing permits: restrain your enthusiasm (Part 1 of 2)

Hurricane Harvey almost certainly had an effect on the August housing report, and Irma will like join it in affecting the September report as well.  Here is the Census Bureau's statement, in relevant part, on the effect of the hurricanes:


They specifically note in the same statement that they made no special adjustment in the reported numbers as a result.

But, first things first.  The top line permits number was tied for the best number of this expansion outside of the NYC-goosed number two years ago.

Having said that, there are at least three important caveats to this good news.

CAVEAT #1: The good number wasn't confirmed by single family permits.

Here are overall housing permits (blue), and the less volatile single family housing permits (red):

The single family number is still significantly below its expansion high from the beginning of this year.  In other words, the good overall number was due to a sharp increase in multi-unit permits.

This is important because, as I have noted in the past, single family permits frequently peak before multi-family permits. So part of the spike in multi-family permits may be this dynamic playing out, for reasons I'll go into further in a separate post.


The good news also wasn't apparent in housing starts:

Housing starts typically lag permits by a month or so.  In this case, even averaging the more volatile starts over three months, they remain significantly below where they were at the start of this year.

CAVEAT #3. Did builders in the South react to imminent hurricanes by rushing to get permits ahead of the storms?

When we look at total vs. single family permits on a regional basis (I'm using the non-seasonally adjusted number here, but the effect is certainly clear in the seasonally adjusted numbers as well), we can zero in on the exact cause -- a spike in multi-unit permits taken out in the South, the census region that includes both Texas and Florida:

The roughly 7,000 jump in multi-unit permits in the South and 4,500 in the West translates into about a 35,000 increase in the West and a 44,000 jump in the South.

At least in the South, it appears that home builders reacted to the oncoming hurricanes by hurrying up to take out their permits in advance of the anticipated closure or anticipated backlog of the local authorities, thereby increasing the number in the report!

CAVEAT to the caveats???  Pent-up permits?

The slump in starts vs. permits is borne out by comparing housing units that have been authorized, but *not* started overall (blue), vs. single family (red) and multi-unit structures (green):

Note that the jump in multi-unit structures this month is about 1/2 of that 2 years ago when the expiration of a special NYC program caused a jump in permits without actual starts.

Similarly, when we take the hurricane-affected South out of the overall housing permits number, while we get a positive number we are still below the highs of late last year:

So, to summarize, yes the overall housing permits number was very good.  But restrain your enthusiasm and let's see how the next several months play out, and in particular single family permits.

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