Implications: Another dagger to the heart of the case for a double dip recession. Housing starts soared in August and – for the first time since 2006 – the total number of homes under construction did not decline. Most of the gain in starts was due to multi-family units, which have increased 30%-plus in each of the past two months. Traditionally, multi-family units are extremely volatile from month to month, so some portion of these gains might be short-lived. However, as the top chart shows, since late last year there is a clear upward trend in multi-family housing starts. In particular, these gains are due to structures that contain at least five units, not structures with two to four units. These data fit well with the decline in home ownership and the rise in rental occupancy, a trend that will likely continue for at least the next couple of years. As a result, the upward move in multi-family units should not be discounted as much as it would have been in the past. Although excess housing inventories remain, they are falling rapidly and will continue to decline even in the face of a substantial recovery in home building. True, many former "homeowners" (we use that term loosely after an era of zero down payments) are becoming renters, but rental properties require construction too. When you hear stories about a "wave of foreclosures" lifting inventories, remember that when someone leaves their home to rent somewhere else that overall housing inventories do not change.
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