– August 16, 2019
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Housing construction activity was mixed again in July as total starts fell by 4.0 percent but permits for future construction rose 8.4 percent. Total housing starts dropped to a 1.191 million annual rate from a 1.241 million pace in June. The dominant single-family segment, which accounts for about three-fourths of new home construction, rose 1.3 percent for the month to a rate of 876,000 units, marking the second gain in a row (see chart). Starts of multifamily structures with five or more units sank 17.2 percent to 303,000, pushing activity to the lower end of the 300,00 to 450,000 range that multifamily starts have been in for much of the last two economic expansions (see chart). From a year ago, total starts are up 0.6 percent, with single-family starts up 1.9 percent and multifamily starts off 4.7 percent.

Among the four regions in the report, total starts fell in three, the Northeast (−13.8 percent), the Midwest (−6.2 percent), and the South (−4.3 percent), while the West rose 1.3 percent. For the single-family segment, starts rose in three regions but were off 3.9 percent in the South.

For housing permits, total permits rose 8.4 percent to 1.336 million from 1.232 million in June. Single-family permits rose 1.8 percent to 838,000 in July, the third monthly gain in a row (see top chart). Within the multifamily segment, permits for two- to four-family units were off 2.2 percent and permits for five or more units jumped 24.8 percent to 453,000 (see chart). Permits for single-family structures are down 3.8 percent from a year ago while permits for two- to four-family structures are up 50.0 percent and permits for structures with five or more units are up 9.2 percent over the past year.

Overall, single-family housing activity has posted a modest rebound over the last three months following a period of weakness from early 2018 through early 2019. The sharp drop in mortgage rates may be providing a bit of a tailwind, but there is little evidence to suggest a significant acceleration in single-family housing activity in coming months and quarters. Activity levels remain at or below the typical levels during prior expansions over the past 35 years.

Multifamily housing remains generally robust, sustaining activity at levels consistent with the prior two economic expansions. However, given the high level, it’s unlikely that it can go much higher. Therefore, total residential investment is unlikely to be a significant and sustained source of growth for the economy.

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Robert Hughes

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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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