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Hurricanes Impacting Housing Starts

The U.S. Census Bureau [1] and U.S. Department of Housing and Urban Development [2] (HUD) have released their joint residential construction statistics for September 2018. Overall, the numbers show a stagnation in the construction of single-family homes nationwide, and most experts in the housing market point at recent storms as the chief culprit in causing this slowdown.

The authorization of building permits for privately-owned housing units decreased 0.6 percent from the preceding month, or 1.2 percent in comparison to September 2017. Authorizations for single-family homes was up 2.9 percent, at a rate of 851,000.

Privately-owned housing starts slipped 5.3 percent from August but went up 3.7 percent in comparison to the same time last year. Single-family starts dropped 0.9 percent in comparison to August, falling from a rate of 879,000 to 871,000.

Housing completions overall were down 4.1 percent in comparison to August, but up 7.0 percent in comparison to September 2017.  The total number of single-family housing completions was 844,000, an 8.7 percent decline from last month.

A plurality of housing market experts blames the recent spate of hurricanes for the slowdown in construction. “Efforts to repair damage from Hurricanes Florence and Michael will likely slow housing starts in coming months, as resources are directed toward repairs and rebuilding efforts,” said Mark Fleming, a Chief Economist with First American [3], who went on to suggest that the drop in housing starts for September was “driven by a 13.7 percent decrease in the South, which may reflect disruptions from Hurricane Florence.”

“Recovery efforts will further exaggerate the existing shortage of construction workers needed to build new homes as the demand for their skills from existing homeowners for reconstruction pulls labor away from new construction,” Fleming continued. “The competition between reconstruction and new construction after hurricanes depends on the extent of the damage, but the cost of labor is likely to increase significantly, creating additional headwinds to housing starts.”

Joseph Kirchner, a Senior Economist for Realtor.com [4], agrees that this particularly lively storm season is behind the stagnation in construction, though he also points to rising costs. “Single-family starts fell in September as Hurricane Florence took its toll on labor availability and builders in the Carolinas,” Kirchner said. “Looking ahead, builders are likely to continue to struggle to build affordable entry-level homes. Last week’s producer-price index data showed that costs, especially transportation costs, are continuing to rise and likely to continue to hold back new construction.”

LendingTree [5]’s Chief Economist Tendayi Kapfidze joins the others in pointing to the hurricane’s damage in the Carolinas as causing the slowdown but also suggests rising interest rates, prices, and taxes are factors. These rising costs, Kapfidze said, “[have] made housing about 10 percent less affordable than a year ago. As there are less buyers at each price point, the appropriate market response is a slowdown in sales and an eventual easing in price momentum.”

Still, despite the rise in rates and prices, Kapfidze emphasized that no trouble was lurking in the industry. “We do not see the housing market as a risk to the broader economy,” Kapfidze said. “When we look at prior housing cycles, continued acceleration in home sales and prices would have to come at the cost of increasing leverage. This is how we got in trouble before. Had the market slowed in an orderly fashion in 2003 or 2004, we may have saved the economy from the woes unleashed later in the decade.”