U.S. housing starts rebounds in June, solid demand likely to continue supporting construction activity

U.S. housing starts recovered in June. Homebuilders made up for earlier months’ contractions breaking ground on 1215k units in June, the highest level since February. This surprised to the upside, with expectations for a 1160k print. Building permits also exceeded expectations and reached 1254k, highest level since March.

Single family homebuilding contributed the most to the headline rise, increasing by 50k from last month, while the volatile multi-family segment rose 43k. This was sufficient to leave the quarter with a net gain of 25k in the construction of single-family units. Activity in the multifamily segment was greatly unchanged in the quarter, noted TD Economics in a research report.

Permits exceeded expectations, with the single-family segment recorded the most solid gain since December 2016, rising 32k in June. Multi-family permits also rose strongly by 54k on the month. These are encouraging developments, implying additional strength in homebuilding would follow.

The Northeast witnessed the most solid growth in starts since the first half of 2016 while the Midwest also witnessed activity grow robustly by 37k. On the contrary, the South added to a string of consecutive drops in activity as starts dropped by 21k in June.

Following a disappointing start to the second quarter, homebuilding activity picked up in June with a net gain in housing starts. In all builders are maintaining sentiment as demand has stayed solid with this confidence seen in July NAHB survey that showed optimism amongst builders, stated TD Economics.

Solid demand from homebuyers are likely to continue to support construction activity as rising incomes counter any drag from rising mortgage rates. This notion is verified by the fact that less volatile single-family segment accounted for the bulk of the rise, with permitting activity auguring well for near-term starts.

The report released today erases the contraction in starts at the beginning of the quarter, but the level of activity in the second quarter continues to be lower than in the first quarter with residential construction likely to weigh on the growth in the second quarter that should still clock in at a relatively sound 2.7 percent. The solid handoff into the third quarter implies that residential investment should again become supportive of economic growth in the September quarter, added TD Economics.

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