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First Cut: Dip in June housing starts entirely due to decline in multi-unit starts while single-family units higher

Housing starts in June dipped 0.9% to 1.253 million units (SAAR) after 1.265 million units in May. However, the decline was entirely due to a 9.2% drop in the multi-unit sectors to 406,000 in June after 447,000 in May. Single-family starts were up a respectable 3.5% from the prior month at 847,000 and were the highest since 966,000 when starts were atypically strong for a winter month, but got a boost from a rapid fall in mortgage interest rates that tapped into some pent up demand.

Starts were up 6.2% compared to 1.180 million units in June 2018. The level of starts began to fade in mid-2018 as prices rose along with mortgage rates. The June 2019 reading suggests that starts are more-or-less back on track for a moderately active housing market. Starts for single-family units haven’t quite returned to last year’s highs and were down 0.8% compared to a year-ago. Multi-units jumped 24.5% from the year-ago month, possibly in part on a shift to smaller housing units for entry level buyers where stocks of existing homes are limited, and for downsizers moving into homes better suited to their need.

Starts were up sharply in two of four regions. The Northeast (up 31.3%) and Midwest (up 27.1%) were the busiest, possibly in part because wet weather delayed some activity in May. Starts were off in the South (down 9.2%) and West (down 4.9%), probably attributable to slower starts for multi-units in retirement and vacation areas.

Permits issued were down 6.1% in June to 1.220 million units (SAAR) after 1.299 million in May. Some of this suggests that the wave of permits generated by the downward move in mortgage rates is exhausted for now. However, like starts, the decline was concentrated in multi-units (down 16.8%) while single-family home permits were a bit higher (up 0.4%).

Permits were also down compared to a year ago. Overall permits were down 6.6% with permits 4.7% lower for single-family homes and off 10.2% for multi-units. This is likely to be a one-off after a few months of higher readings. As long as mortgage rates are low and stocks of available homes limited, homebuyers are going to consider new construction.

Permits issued were down in three of four regions. Lower permits were in the South (down 10.4%), West (down 7.9%) and Midwest (down 0.6%). The Northeast had a burst of new permits (up 21.9%).

The headline for housing starts was somewhat below expectations, but not materially. Construction of new housing is humming along. The headline for permits issued is more concerning in the short term given the steep decline, but it can be attributed to the volatile multi-unit sector and should not be of more than short duration.



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