The 2.1% increase in July’s housing starts was more than the anticipated 0.8% decrease. On an annual basis, the volatile starts are 5.6% higher than a year ago. The last-three-months’ starts rose by an average of 1.6% following a 2.2% increase for this metric in June. The monthly increase in total starts was due to strength in multifamily homes, which rose by 8.3% after a 3.6% rise. Single-family starts, rose by just 0.5% following a 3.9% increase. Multifamily starts are now 15.2% higher than a year ago, while single-family starts are 1.3% higher than last year. Starts in July were well above the 1 million mark, at 1,211,000, the highest since February. Since 1947, the median monthly reading in housing starts has been 1.46 million. Meanwhile, building permits fell by 0.1%, to 1,152,000—0.9% higher than 12 months earlier; they had been expected to rise by 0.6% in the month.
Regionally, the pattern of housing starts activity again shows some marked divergences: starts fell by 5.9% in the West, but rose by 15.5% in the Northeast, 3.5% in the South, and by 2.3% in the Midwest.
According to the latest NAHB homebuilders’ survey for August, building activity was again quite strong in the month. The sentiment index rose to 60 in August, after 58 in July (50 is the dividing line between viewing conditions as good or poor). The NAHB stated: “New construction and new home sales are on the rise in most areas of the country, and this is helping to boost builder sentiment.” “Builder confidence remains solid in the aftermath of weak GDP reports that were offset by positive job growth in July. Historically low mortgage rates, increased household formations and a firming labor market will help keep housing on an upward path during the rest of the year.”
This report for July was encouraging with relatively decent increases over the last two months. Multifamily activity, however, is still doing much of the heavy lifting, and we are still waiting to see a hand-over to single-family starts, which are rising but at a much more moderate pace. This increased pace of multifamily starts is still very much a function of tighter lending standards, caution on the part of consumers, and demographics (baby boomers downsizing and millennials not yet ready/willing/able to move into the large home in the suburbs). More recently, mortgage applications have seen a slight slowing but remain at a very high level for the post-crisis period, while consumer confidence has been a little patchy (sentiment on the present situation quite high, expectations trending lower). This is despite the strong employment and income data. Inventories for both new and existing homes are at relatively normal levels (again post the economic crisis). Overall, demand for housing remains relatively healthy, supported by rising employment and income, as well as the steady 5% growth rate in house prices. There is also still plenty of room for further improvement, with housing still very much a bright spot in the macro picture.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.