U.S. homebuilding decelerates in July, single family starts likely to grow soundly

U.S. homebuilding decelerated in July with builders breaking ground on 1155k units. This was a surprise on the downside as the markets anticipated a figure of 1220k. Both single-family and multi-family construction fell; however, the latter accounted for most of the decrease. Single family dropped just 4k from an upwardly revised June print of 11k, while multifamily starts dropped 54k from a downwardly revised June reading of -13k.

Building permits also disappointed in the month, recording 1223k as compared with market projections of a 1250k reading. Single family permits had remained stable at 811k in July while the volatile multifamily segment saw permits shrink by 52k from an upwardly revised June figure of 21k.

National housing starts were dragged down by a drop in activity in the Midwest and the Northeast. The West recorded a very modest contraction in building activity while the South saw homebuilding rise by 3k units.

Even if the headline print disappointed, the report was slightly encouraging given the strength in single family starts related to positive revisions to June’s print. Continued strength in demand, seen by strong new home sales data, along with strong income gains from a tightening labor market should underpin additional growth going forward despite the rise in mortgage rates expected going forward, noted TD Economics in a research report. This trend would be further underpinned by homeownership rates, which seem to have found their trough and might be rising.

The robust demand is helping raise builder optimism, with the NAHB’s Index going up by 4 points in August. But, a restrained pool of skilled labor has exerted pressure on builders recently, with increased lumber and land prices posing additional obstacles to construction.

Overall, the report released today is optimistic given the firmness in the single family housing market which is a better indication of wide economic trends. Single family starts are a larger contributor to economic activity than multifamily building and might assist in making residential investment a positive contributor to the third quarter growth that is currently tracking close to 3 percent, added TD Economics.

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