Homebuilding slowed in July with builders breaking ground on 1155k units. This performance surprised to the downside with markets anticipating a 1220k print.
Both single-family and multi-family construction subsided, but the latter accounted for the bulk of the decrease. Single family decreased only 4k from an upwardly revised (+11k) June figure, while multifamily starts fell by 54k from a downwardly-revised (-13k) June reading.
Building permits also disappointed, coming in at 1223k while markets had expected a 1250k reading. Single family permits held steady at 811k in July while the volatile multifamily segment saw permits contract by 52k from an upwardly revised (+21k) June figure.
National housing starts were weighed down by decline in activity in the Midwest (-32k) and the Northeast (-24k). The West posted a very modest contraction in building activity (-5k) while the South saw homebuilding rise by 3k units.
Key Implications
While the headline disappointed, the report was mildly encouraging given the strength in single family starts related to positive revisions to June’s figures. Continued strength in demand, evidenced by robust new home sales data, coupled with robust income gains from a tightening labor market should support further expansion going forward despite the tick-up in mortgage rates expected going forward. This trend will be further supported by homeownership rates, which appear to have found their trough, and may be on their way up.
The strong demand is helping shore up builder optimism, with the NAHB’s Index rising by 4 points in August. However, a restrained pool of skilled labor has placed pressure on builders recently, with elevated lumber and land prices posing further obstacles to construction.
Today’s report is overall positive given the strength in the single family housing market which is a better indication of broad economic trends. Single family starts are a larger contributor to economic activity than multifamily building and should help make residential investment a positive contributor to third quarter growth, which is currently tracking close to 3%.