“Good News” in Housing Starts Has a Dark Side

The mainstream media trumpeted the latest data on housing starts as good news for the economy, but there is a dark side they aren’t talking much about.

Reuters reports housing starts rose more than expected in September, driven by high demand for rental units.

Groundbreaking increased 6.5% to a seasonally adjusted annual pace of 1.21 million units, the Commerce Department said on Tuesday. It was the sixth straight month that starts remained above 1 million units, pointing to a sustainable housing recovery. Starts increased to a 1.13 million-unit rate in August. Economists polled by Reuters had forecast groundbreaking on new homes rising to a 1.15 million-unit pace last month.”

Housing starts had slipped the previous two months. The 6.5% increase brought things back to cycle highs, which as Zero Hedge points out, happened right before the last recession.

Reuters called housing “one of the few bright spots in the economy.”

If you dig deeper into the numbers the brightness begins to fade a bit. There are reasons to believe prospects for the housing sector aren’t quite as shiny as the mainstream media makes out.

While housing starts rose, the number of building permits fell 5.0% to a 1.10 million-unit rate in September, the lowest in seven months. A sharp drop off in multi-family permits drove the drop. They hit the lowest level since 2014.

As Zero Hedge points out, the drop in multi-family permits is a bad omen.

This likely means that rents will continue rising to recorder levels for the foreseeable future as the relentless demand for rental housing will not be satisfied for a long time.”

Reuters put a positive spin on the drop in building permits.

The weakness is likely to be temporary amid strong confidence levels among homebuilders. A survey on Monday showed builders’ confidence rose to a near 10-year high in October, with builders upbeat about current sales conditions and expectations over the next six months.”

But as the graph above shows, builders’ expectations look more like wishful thinking, as they diverge significantly from reality.

If the housing market is the bright spot, that doesn’t say a whole lot for what Reuters describes as an economy that has “braked sharply,” with third-quarter growth estimates running below a 1.5 percent annualized rate.

Even the economic good news these days sits on a foundation with questionable stability.

This post is part of our ongoing series Data Dependent: Reading Between the Lines, where we examine the real economic data not reported in the financial media. Click here to read all our articles in this series.

Get Peter Schiff’s most important Gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning more about physical gold and silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!