Housing Starts Rise Slightly in July

Housing starts rose 0.9 percent to a 1.168-million unit pace in July. Starts for May and June were revised slightly lower. While recent activity has been below expectations, builder confidence remains elevated.

Housing Starts Unspectacular, Yet Remain Solid

Total housing starts increased to a 1.168-million unit pace, rising 0.9 percent in July. Single family starts grew to 862,000, also a 0.9 percent gain. Starts of projects with five or more units increased 3.1 percent. While new units started in July came in below expectations for the second straight month, starts are still running 6.2 percent ahead of last year on a year-to-date basis. Starts in the South increased 10.4 percent in July and regained their footing after declining for the prior two months. This is a positive sign, as roughly half of all new construction takes place in the South. Meanwhile, the West, which is the second largest region for homebuilding, declined 19.6 percent. New starts in the West tend to be volatile, however starts are up 13.8 percent year-to-date. July starts in the Midwest also increased 11.6 percent during the month, while the Northeast fell 4.0 percent.

New building permits also showed improvement during the month, growing 1.5 percent. However, the number of new homes completed fell 1.5 percent, owing to sizable drops in both the South and West. The fall in completions can likely be attributed to monthly noise, however unusually wet weather in the South may have also contributed to the slowdown.

NAHB Housing Market Index Shows Confidence Remains High

Despite the number of starts falling short of expectations, builder confidence remains high. The NAHB Housing Market Index fell one point to 67 in August, however, as displayed in the bottom graph, the index remains elevated and continues to reflect strong homebuilder confidence surrounding buyer demand. Every component of the index edged slightly lower over the month. The present sales index ticked down one point to 73, but remained at a high level. Confidence in the outlook also dimmed slightly, as the future sales index fell one point to 72. The prospective buyer traffic indices also dropped, however remain above year-ago levels. Builder confidence also continues to vary by region. Builder optimism rose in the South and was left unchanged in the West. Meanwhile, the Northeast and Midwest fell 9 and 5 points, respectively.

New Residential Construction Still Expected to Trend Higher That builders continue to express such a high degree of confidence in current market conditions supports our stance that housing starts will be stronger in coming months. While our expectations have been slightly scaled back recently, we still expect new residential construction to strengthen. Rising material prices have been a detriment to new development for much of the year. Given higher costs for materials such as lumber, many projects now fail to pencil out and have been delayed, especially for entry-level homes. However, material prices have begun to ease recently, a trend that should continue in the second half of the year. Lower material prices should allow builders to restart some of the stalled projects and keep residential construction trending higher.

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