Housing starts moved downward from September to October, driven primarily by softness in multi-family construction and unstable data, but permits rose, the Commerce Department reported Wednesday.
Starts moved down to a seasonally adjusted annual rate of 519,000, 11.7% below the revised September estimate of 588,000 and 1.9% below October 2009. Wall Street was expecting a pace of 598,000. The drop, however, was almost entirely attributable to a falloff of 47.5% in multi-family construction to a rate of 74,000. Also, the percentage drop was mitigated as the September rate estimate was revised downward from 610,000 to 588,000.
Single-family starts fell 1.1% from September to a rate of 436,000 and were 8.2% off the pace of October last year. The September estimate, which had been driven by a huge increase in the Northeast, was revised downward from a rate of 452,000 to 441,000. A small sample size in the Northeast has rendered the Commerce Department's data from that region unreliable.
Permits rose overall by 0.5% to a seasonally adjusted annual rate of 550,000, 4.5% below October, 2009. Single-family permits were up 1% to a rate of 406,000 but 13.2% below the year-ago pace.
The data for the Northeast in October again appeared suspect, with starts up 12.9% against a rise of 1% in the Midwest, a decline of 13.4% in the South, and a plunge of 30.4% in the West. For single-family starts, the Northeast was flat while the Miwest lost 1.3%, the South gained 3.7% and the West dropped 13.6%.
Compared with last October, starts in the Northeast were up a highly suspect 43.6% overall with single-family up 25.5%, a data point unsupported by any home builder that reported during the recent third-quarter earnings season. Meanwhile, the Midwest was up 1% overall but down 1.3% in single-family starts, off 2% and 8.5% year-over-year. The South was down 13.4% overall but up 3.7% in single-family, off 6.7% and 10.7% respectively on an annual comparison. The West was off 30.5% overall and off 13.6% in single-family starts, down 13.3% and 18.3% from the same month last year.
The permit data was less suspect. The Northeast was flat overall and up 2.2% for single-family, up 10.3% and down 6% year-over-year. The Midwest saw permits jump 14.3% overall and 4.3% for single-family, down 1.9% and 9.9% respectively on an annual basis. The South was down 3.4% and 1.5%, respectively, from September and down 10.7% and 16.3% year-over-year. Sequentially, the West was down 0.9% overall, up 3.7% for single family, and flat with last October overall but down 12.4% for single-family.
Michael Rehaut at J.P. Morgan warned investors about the integrity of the data. "We note this drop was entirely driven by continued volatility in multi-family starts, which fell 43.5% seq., while single family starts only fell 1.1% seq. to 436K. We note the volatility in multi-family has been occurring since 2007, which has had increased impact on the total starts number as single-family starts have declined."
Stephen East at Ticonderoga Securities said in his research note that he expected traders to punish the builder group based on the data, but he added, "Given the benign single-family metrics, we would not be surprised, however, by a recovery in the builder equities after the data is sorted."