• Housing starts increased 3.9% in July to a 1.452 million annual rate, narrowly beating the consensus expected 1.450 million.  Starts are up 5.9% versus a year ago.
• The gain in July was entirely due to single-family starts. Multi-unit starts fell in July. In the past year, single-family starts are up 9.5% while multi-unit starts are down 0.8%.
• Starts in July rose in the West, Midwest, and Northeast, but fell in the South.
• New building permits increased 0.1% in July to a 1.442 million annual rate, lagging the consensus expected 1.463 million.  Compared to a year ago, permits for single-family homes are up 1.3% while permits for multi-unit homes are down 30.8%.

Implications:

Home building continued to look choppy in July, with starts posting a moderate gain following a decline in activity in the previous month.  Looking at the details, the rebound in starts in July was driven entirely by single-family homes with three out of four regions contributing.  Looking at the big picture, during COVID, a combination of extremely low interest rates and pressure to work from home led to a boom in housing in general, including home construction.  Then when mortgage rates went up, building dropped.  Now, the sticker shock of higher mortgage rates is wearing off and we are seeing home building gradually recover to roughly 2019 levels.  In other words, there is no housing bust, but it is also true that housing is unlikely to be a key driver of growth with rates higher for longer.  Keep in mind that many owners of existing homes are hesitant to list their properties and give up fixed sub-3% mortgage rates, so many prospective buyers have turned to new builds as their best option.  This has supported demand for developers and should help construction activity going forward.  Single-family construction was largely responsible for the decline in activity in the past year and is now driving the recovery.  It’s also important to remember that lots of projects were already in the pipeline and the number of homes under construction continues to hover near the highest level on record back to 1970.  These figures also demonstrate a slower construction process due to a lack of workers and other supply-chain issues.  Given that builders already have their hands full, it was not surprising to see permits for new projects tread water in July.  In other recent housing news, the NAHB Housing Index, a measure of homebuilder sentiment, fell to 50 in August from 56 in July.  This is the first decline in eight months and coincides with a recent jump in mortgage rates. An index reading of 50 signals that an equal number of builders view conditions as poor versus good.