Housing starts turn up in June

Wells Fargo Research Team Wells Fargo

Summary

Multifamily jump overshadows single-family slump

High interest rates are beginning to weigh more heavily on residential construction. Total housing starts rose 3.0% to a 1.35-million-unit pace during June. However, the consensus-beating upturn occurred largely as a result of a surge in multifamily starts, which are highly volatile on a monthly basis. Despite June's gain, multifamily starts are still down sharply over the past year alongside softer apartment market fundamentals and tighter credit conditions.

Meanwhile, both single-family starts and permits once again pulled back during June. Builders now appear to be scaling back production alongside slowing new home sales and rising inventory levels. All told, the headwinds created by restrictive monetary policy appear to be intensifying for home builders. Financing their operations has become more expensive and demand appears to be waning as a result of elevated mortgage rates, increased supply in the resale market and cooling labor market conditions.

Against this backdrop, the NAHB Housing Market Index declined for the third consecutive month in July. Although rate cuts should eventually help enliven activity, the recent dip in single-family permits and dimming builder sentiment suggests residential construction will continue to lose momentum over the next several months.

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Wells Fargo Research Team

Wells Fargo

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