08.18.2016 | Housing Starts Unexpected Rise in July – Rusty Tweed team
Housing starts ran higher than expected in July, growing at a seasonally adjusted 1.21 million annual rate, an increase of 2.1% from June’s upwardly-adjusted figure and the highest since February. Building activity increased generally supporting the notion that investment in residential construction will rebound following a slump in the second quarter.
However, permits for future construction went in the opposite direction, dipping slightly to a 1.15 million-unit annual rate last month. Economists who had been polled by Reuters had instead forecast housing starts dropping to a 1.18 million-unit pace last month and building permits increasing to a 1.16 million-unit rate.
Despite an expected continued rebound, the fact that permits are lagging behind housing starts, coupled with a tightened labor market, will likely slow growth.
Multifamily Starts See a Healthy Rebound
Most of the strength in housing starts in July came from multifamily starts, which rose by 8.3% to a 433,000 annual rate. Single-family starts saw only a slight increase of 0.5% to a 770,000 annual pace. The multi-family segment of the market continues to be aided by robust demand for rental accommodation as a large section of Americans continue to shun homeownership in the aftermath of the housing market collapse.
While housing starts numbers remain lower than pre-recession levels, compared to this time last year, housing starts are 5.6% higher, and last month’s figure represented the second best of the recovery.
More houses were under construction last month than at any time prior to 2008, indicating homebuilders were making progress in filling orders.
“What we’re seeing is quite encouraging,” said Millan Mulraine, deputy head of U.S. research and strategy at TD Securities in New York. “It suggests that the housing sector recovery is building on the strong momentum we’ve had in the past few months.”
However, for many buyers, prices remain too high to buy, partly as a result of higher demand for new and previously-owned housing and not fast enough growth of new construction. According to Marketwatch, many economists have argued for a growth in single-family houses, to help contribute to economic activity and as a show of good faith in a market of homes for purchase.
Earlier this week, the National Association of Home Builders reported that builder sentiment had slightly improved. However, a gap continues between builder confidence and the number of homes they start.
MFR Chief Economist Joshua Shapiro wrote, “Building permits and the NAHB Housing Market Index point to little underlying upward impetus in single family starts over the near term, while the message from new home sales, which for obvious reasons are the most important determinant of starts, is a more positive one, although starts have yet to respond to the latest leg up in sales.”