Housing Starts and Permits Rise in June But the Trend Remains Weak

By Robert Hughes

New-housing-unit starts rose 8.3 percent in June to 1.22 million, led by a 15.4 percent jump in structures with five or more units. Single-family starts rose by a more modest 6.3 percent in the month. Despite the increase, starts remain about 9 percent below the recovery peak of 1.33 million hit in October 2016.

Average annual growth over the past year and a half has slowed to a 6.2 percent pace from an average growth rate of 14.5 percent for 2011 through 2015. Much of the slowdown has been in the multifamily segment, where average growth has slowed to just 0.3 percent compared to a 35.6 percent average gain for 2011–15. Regionally, housing starts in the Northeast saw an 83.7 percent surge for the month, followed by a 22 percent gain in the Midwest, a 1.6 percent rise in the West, and a 3.8 percent fall in the South.

Housing permits issued for future housing construction rose 7.4 percent in June to a 1.25 million annual rate, with single-family permits posting a 4.1 percent rise and multifamily permits gaining 6.3 percent. Similarly to the housing starts, the monthly gain still left the level of permits below the recent peak level, and the average growth rate has slowed significantly compared to the earlier phase of the economic expansion. Permits in June were driven higher by gains in the single-family segment while permits for multifamily units are trending slightly lower despite the June increase. Regionally, permits rose 19.7 percent in the Midwest, 9.9 percent in the West, and 6.9 percent in the South, and fell 13.9 percent in the Northeast.

The gain in both starts and permits in June comes as builder confidence appears to be softening a bit. The Housing Market Index from the National Association of Home Builders declined in early July to 64 from 66 in the prior month. The HMI hit a recent peak of 71 in March and has fallen in three of the past four months. Among the components of the HMI, the index for current single-family sales fell to 70 from 72 in the prior month while the index for sales over the next six months fell to 73 from 75 in June. The index for traffic of prospective buyers dropped 1 point to 48 in early July. Regionally, the Northeast and the West showed increases in home-builder confidence, rising to 48 from 46 and 74 from 71 respectively. Home-builder confidence in the Midwest fell to 64 from 68 previously while confidence in the South fell to 63 from 68.

Despite the increases in starts and permits in June, softening activity for both housing and autos over the past few months combined with weakening consumer confidence in the economic outlook and somewhat higher interest rates is a worrisome combination, but the strong labor market should provide support for continued growth.

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Robert 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.