It has been more than a month since Hurricanes Harvey and Irma made landfall on the Texas and Florida coasts, and things are gradually returning to normal, but the storms’ influence continues to be felt.
When the Commerce Department reported Wednesday on September housing starts, they had fallen to a one-year low. Housing starts – an indicator of economic conditions – were reported at 1.183 million in August, the second consecutive monthly decline since an uptick in June. Economists had anticipated another decline in September – to 1.175 million – but housing starts fell even more than they expected, to 1.1270 million.
Observing that “economists had expected only a small drop of 0.5%, making the sharp fall all the more troubling,” Brian Davis, director of education for SparkRental.com, said the 4.7% drop “marks a worsening downward momentum from August’s slide.”
Davis also noted that “building permits fell by a similar 4.5% to a rate of 1.215 million units after economists had predicted a 2.9% dip.”
Davis acknowledged that “Hurricanes Harvey and Irma are at least partially to blame, pulling construction resources toward repairing and rebuilding damaged homes rather than building new ones. Still, the news remains unwelcome for home shoppers who have been battling low supply for several years now. Housing supply is especially low for starter homes with a disproportionate number of new homes being classified as luxury homes.”
The decline in housing starts was not evenly distributed across the country. The drop was most pronounced in the Midwest, where housing starts fell more than 20%. Housing starts dropped less than 10% in the Northeast and the South while the West actually saw an increase of nearly 16%.
“The hurricanes that walloped Houston, Florida and Puerto Rico haven’t led to a burst of rebuilding,” wrote Abby Schultz for Barron’s. “Yet there are underlying bright spots for the future within the data and from other corners of the housing market.”
Multifamily housing starts have been outpacing single-family housing starts, Schultz observed, “reflecting demand for more rental housing in the early stages of the recovery. That dynamic is starting to shift.”
Mortgage applications are up, but “clarity on the direction of housing construction and sales may not be found until next month at the earliest,” Schultz cautioned.
Prior to the report, John Engle, president of Illinois-based Almington Capital, said “the impact of the hurricanes will likely still be felt, crimping September housing starts.”
Engle noted the hurricanes “hit two of the fast-growing residential markets so the impact has been inordinate to this economic indicator. But as things start to recover, growth should pick up again.”
His view was largely unchanged in the wake of Wednesday’s report.
“The drop was indicative of the damage from the hurricanes,” he said, reiterating that “we should start to expect a return to normalcy in the next couple months.”
The decline did not appear to have a dramatic impact on homebuilder stock prices.
At the close of trading Wednesday, the price per share of the nation’s largest homebuilder, Arlington, Texas-based D.R. Horton (DHI, Financial), was up 0.05% at $41.51. British homebuilder Persimmon PLC (LSE:PSN, Financial) was up 1.76% and selling for 27.91 pounds ($36.88). Miami-based single-family homebuilder Lennar Corp. (LEN, Financial) was up 0.61% at $56.27. Atlanta-based Pulte Homes (PHM, Financial) was up 0.04% at $27.33. Pennsylvania-based homebuilder Toll Brothers (TOL, Financial) sold for $43.11, an increase of 0.16%. Texas-based LGI Homes Inc. (LGIH, Financial) sold for $54.38, an increase of 1.08%.
Disclosure: I do not own any of the stocks mentioned in this article.
