Housing Starts, Permits Miss; Single-Family Housing Market Weakest Since November 2012

That Housing Starts and Permits both missed expectations modestly is not a surprise: after all, NAHB hopium confidence aside, the builders have realized which way the interest-rate wind blows and grasp very well that in a rising rate environment demand for housing will go the inverse of up. Sure enough, housing starts rose from an upwardly revised 846K to 896K, missing expectations of a 900K print, while Permits rose from 918K to 943K, also missing the expected 945K print. Both misses were neglibile and largely covered by seasonal adjustments.

However what really captures the dynamic behind the housing situation is the read-through into single (family) and multi-unit (investment rental properties). It is here that the divergence was most profound and tells a tale of one housing bubble which has popped, and another which is still going strong, if tapering.

At 591K single units started, this was a drop from the 604K in June, well below the 2013 highs of 652K in February, and is the lowest print since November of 2012. As far as the ordinary US family is concerned, the second housing bubble has come and gone. The one place where housing euphoria still remains? In the straight to rental market: at 290K multi-unit starts, July saw a major rebound from the 231K plunge in June (down from 311K in May), and is an indication that for the Private Equity community which is still aggressively bidding up multi-unit housing to use as a rental cash flow piggy bank, the housing bubble is still alive and well, even if the trendline is now pointing lower.

Wait for this last second housing bubble hurrah to pop the second the taper goes from myth to fact. At that point all the talk of a housing recovery, as fake as it may have been all along in a country in which 60% of all house purchases are all cash, will finally die.