U.S. housing starts edged higher in July following a sharp drop in June. Starts rose by just 0.9% m/m to 1.168 million units (annualized), following a further downward revision to the figures for May (-8k units) and June (-15k units). The outturn was much lower than market expectations for a 7.4% showing.
The headline print reflected marginal improvements in both the single and multifamily segments. Single family starts rose 0.9% (to 862k), while multi-family starts came in with a more modest improvement of 0.7% (to 306k), recovering just a fraction of the ground conceded last month.
Building permits posted a 1.5% increase in July, after three consecutive months of declines. There were increases in both the number of single (+1.9%) and multifamily (+0.7%) permits issued.
Regionally, starts were up in the Midwest (11.6%) and South (10.4%), while the Northeast (-4.0%) and West (-19.6%) posted declines. Changes in the Midwest in particular, have been quite volatile of late, veering notably between positive and negative territory. Encouragingly, single-family permits in the South were the highest they have been since July 2007.
Key Implications
Given the size of the decline posted in June, the uptick in July was pretty disappointing. Overall starts are still down 14% from their peak in January of this year. While most of the recent decline has been in the multi-family segment, singles are also down 9% from their peak levels recorded in November 2017.
A lack of housing supply is also pushing up home prices. Unfortunately, headwinds to homebuilding remain in the way of land scarcity, labor shortages, and rising construction costs (exacerbated by tariffs). While demand should continue to be supported by a strong job market and the flow of millennials entering their home buying years, affordability pressures will remain a constraint as long as home prices are rising faster than incomes.
