U.S. Housing Starts Rose 19% in June, While Permits Declined

U.S. housing starts jumped 19.0% in June to a seasonally adjusted annual rate of 1.427 million units, significantly exceeding consensus expectations of 1.310 million. This marks a 3.5% increase compared to the same period last year. However, the gains were predominantly concentrated in the multi-unit segment, with single-family housing starts experiencing a decline during the month. Over the past year, single-family starts have decreased by 3.2%, while multi-unit starts have risen 17.2%. All four major U.S. regions reported an increase in housing starts for June.

Despite the headline growth in starts, new building permits, a forward-looking indicator for construction activity, fell 3.0% in June to an annual rate of 1.367 million units. This figure came in below the anticipated 1.403 million and represents a three-month low. Single-family permits specifically declined 2.4% to their lowest level in nearly a year. Compared to a year ago, single-family permits are down 0.2%, and multi-unit permits are down 5.7%.

The robust 19.0% monthly increase in overall housing starts was largely attributed to a 76% rebound in multi-unit construction, following a 40% drop in May. Conversely, single-family starts edged down by 0.2% and have struggled to gain momentum, reflecting a 3.2% decrease over the last twelve months. This divergence highlights a persistent challenge for homebuilders, who continue to grapple with a difficult environment.

Affordability remains a critical hurdle, with 30-year mortgage rates climbing approximately 50 basis points to 6.6% following recent geopolitical events, effectively doubling the rates seen through much of 2021. Additional headwinds include elevated home prices, restrictive local building regulations, and a tightening labor market for construction workers exacerbated by stricter immigration enforcement. Tariffs on building materials also contribute to increased costs, collectively hindering new construction.

The sentiment among homebuilders, as measured by the NAHB index, further underscores these difficulties, dropping to 34 in July from 36 in June. A reading below 50 indicates that more builders perceive conditions as poor rather than good, a trend that has persisted for 27 consecutive months. Separately, pending home sales, which track contracts on existing homes, fell 5.4% in June after a 3.5% increase in May, suggesting a potential softening in existing home sales in the near future.

Key terms:

1. Housing Starts: An economic indicator that measures the number of new residential construction projects started during a specific period, reflecting demand for new homes.

2. Building Permits: Government authorizations required before construction can begin. They are considered a leading indicator for future construction activity.

3. NAHB Index: A survey-based index from the National Association of Home Builders that measures homebuilder sentiment regarding current sales, prospective buyer traffic, and future sales expectations.