– August 18, 2020

Housing activity posted a solid gain in July as starts and permits both rose. However, the results were mixed across the major regions. Nevertheless, low mortgage rates and strong demand suggest a favorable outlook, though risks remain.

Total housing starts rose to a 1.50 million annual rate from a 1.22 million pace in June, a 22.6 percent increase. The July pace was the fourth highest since 2006 at the end of the housing bubble.

The dominant single-family segment, which accounts for about 60 percent of new home construction, rose 8.2 percent for the month to a rate of 940,000. Starts of multifamily structures with five or more units surged 56.7 percent to 547,000. From a year ago, total starts are up 23.4 percent with single-family starts up 7.4 percent and multifamily starts up 67.8 percent.

Among the regions in the report, total starts rose in all four regions. The Northeast led the gainers with a 35.3 percent surge followed by the South, the largest region by volume, with a 33.2 percent jump. The West and the Midwest each gained 5.8 percent for the month. For the single-family segment, starts rose in two regions and fell in the other two. The South led in single-family starts with a 13.3 percent rise while the West posted a 6.2 percent increase. The Midwest had a 0.8 percent decline while the Northeast fell 2.6 percent.

For housing permits, total permits rose 18.8 percent to 1.50 million from 1.26 million in June. Total permits are 9.4 percent above the July 2019 level. Single-family permits were up 17.0 percent at 983,000 in July while permits for two- to four-family units gained 12.5 percent and permits for five or more units increased 23.5 percent to 467,000. Combined, multifamily permits were issued at a 512,000 pace versus 418,000 in June. Permits for single-family structures are up 15.5 percent from a year ago while permits for two- to four-family structures are down 2.2 percent and permits for structures with five or more units are down 0.4 percent over the past year.

Permits rose across all four regions in the report, with the South up 13.7 percent, the West posting a 29.1 percent rise, the Midwest gaining 23.8 percent and the Northeast gaining 14.8 percent. From a year ago, the South is up 8.3 percent, the West is 1.9 percent higher, the Midwest gained 32.5 percent and the Northeast rose 6.9 percent.

Home construction activity has recovered sharply since the April low as lockdown restrictions that impacted both construction workers and potential customers were eased. Mortgage rates are near all-time lows, providing some support for the recovery though lending standards have tightened amid the policy-induced economic malaise.

Future demand remains uncertain. Housing is one of the areas that may face structural changes if buyers and renters develop permanent shifts to their housing preferences. If it is believed that higher density living represents a higher risk in future pandemics, then there may be some added demand for less dense suburban and rural housing. This trend could be boosted if businesses implement permanent work from home policies, to make employees happy but also to cut down on high-cost commercial real estate, especially in high-density, high-cost cities.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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