US housing starts rise in August

US housing starts rose in August, according to figures released on Tuesday by the Commerce Department, but analysts argued the gain may be short-lived.

Housing starts pushed up 12.2% from the revised July estimate to a seasonally-adjusted annual rate of 1.575m. Meanwhile, July’s figure was revised down to 1.404m from 1.446m. Economists had expected a rate of 1.450m for August.

Building permits fell 10% on the month in August to an annual rate of 1.517m.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said: "You can expect media attention after these numbers to focus on the 12.2% leap in housing starts, and more or less ignore the 10.0% plunge in permits. But as a general rule, when starts and permits move in opposite directions, trust the permits numbers, which lead and usually are less noisy. The surge in headline starts was concentrated in a 31% leap in the multi-family component, lagging prior gains in permits; see chart.

"Multi-family starts likely will be little changed in September but will then probably drop sharply in October. They account for about one-third of total starts, but they can dominate the m/m numbers because they are so volatile. In August, single-family starts rose 3.4%, correcting after a 10.8% plunge in July. They are now in line with the lagged permits numbers, but the latter are still falling; they have a long way to go in order to catch up with the ongoing collapse in new home sales.

"August permits also were distorted by the multi-family sector, down 17.9%, but the 3.5% fall in the single-family component was the sixth straight decline, and permits fell at a 50% annualized rate in the three months to August, compared to the previous three months.

"In short, ignore the headline starts numbers. The collapse in single-family permits is the real story, and it has much further to go."