US Housing Starts: Despite the drop, home building remains exceptionally strong – Wells Fargo

The Housing Starts report showed a decline of 7% in July to 1.534 million (annual-unit). According to analysts at Wells Fargo, point out that despite the drop, home building remains exceptionally strong. They explained that overall housing starts have averaged a 1.577 million-unit pace over the past six months, such a pace would mark the strongest year for housing starts since 2006.

Key Quotes: 

“Housing starts fell 7% in July to a 1.534 million-unit pace. Data from prior months were revised modestly higher, which makes the decline less worrisome. Moreover, building permits rose 2.6% and are once again comfortably back above starts. Home builders are still dealing with massive supply shortages and are having to manage the flow of their projects to a much greater degree than ever before.”

“Even with these challenges, the industry is on a pace to begin construction on close to 1.6 million homes this year, which would be the best year for housing starts since 2006.”

“Prospective buyer traffic has also slowed. One of the reasons buyer traffic is off is because builders have relatively few homes to show prospective buyers. Affordability is also a hurdle for many potential buyers, and the reopening of the economy, particularly the return to work and return to school, are competing for prospective buyers' time right now.”

“While housing starts fell more than expected, most forecasters, including ourselves, were looking for a decline in July. There is no question that home building has hit some sort of near-term ceiling, with surging home prices reducing affordability and leading to a record drop in the proportion of consumers that feel now is a good time to buy a home.”

“We recently boosted our forecast for multifamily starts for this year and next, based on the recent strong absorption numbers and rise in apartment rents.”

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