Builder confidence jumps in August despite 5.8% drop in home starts

completed house frameThe start of construction on homes in the U.S. fell 5.8 percent during August to a seasonally adjusted annual rate of 1.142 million, according to preliminary data from the Commerce Department.

Declines in both single- and multi-family housing units brought on the monthly decline. However the rate remains 0.9 percent above the August 2015 figure.

Single-family home starts fell 6 percent to a rate of 722,000 and are down 1.2 percent from the year-ago figure. Multi-family home starts fell 6.9 percent to a rate of 403,000 but remain 2.3 percent above the year-ago figure.

Building permits, a good barometer of how the homebuilding industry is trending, were down for the month, falling 0.4 percent during August to a rate of 1.139 million. Permits are down 2.3 percent from the August 2015 estimate.

Builder confidence in the housing market jumped six points according to the September release of the National Association of Home Builders/Wells Fargo Housing Market Index. Following a downward revision of the August index from a 60 to a 59, the index now stands at a reading of 65—the highest since October 2015. Any reading above a 50 indicates most home builders believe market conditions are good.

“As household incomes rise, builders in many markets across the nation are reporting they are seeing more serious buyers, a positive sign that the housing market continues to move forward,” said NAHB chairman Ed Brady in a prepared statement. “The single-family market continues to make gradual gains and we expect this upward momentum will build throughout the remainder of the year and into 2017.”

“With the inventory of new and existing homes remaining tight, builders are confident that if they can build more homes they can sell them,” added NAHB chief economist Robert Dietz. “Though solid job creation and low interest rates are also fueling demand, builders continue to be hampered by supply-side constraints that include shortages of labor and lots.”