June Housing Starts: Rapid Reaction

• June housing starts fell 12.3 percent from May and 4.2 percent from a year ago, to 1.173 million (SAAR), according to the U.S. Census Bureau.
• Residential building permits in June fell 2.2 percent from May and 3 percent from June 2017, to 1.273 million nationwide (SAAR).
• Housing completions were unchanged from May and up 2.2 percent from a year ago.

One month of soft starts and permitting data is not enough to reverse the general upswing the new home construction and new home sales markets have been on for the past year or so. Despite significant cost headwinds, builders are largely succeeding – however slowly and inconsistently – in generally getting more homes into the pipeline. In the near- to mid-term, this trend looks set to continue, since the strong bump in starts last month is likely to show up in completions (and, presumably, sales and occupancy) a few months from now. Which is great, because at this point in the cycle demand from home buyers is far outstripping supply of homes to buy, and the market needs every last home started that buyers can get their hands on. What’s troublesome are the longer-term trends hiding in plain sight: Starts are well and good and provide a short-term rush when they become completions down the road, but there are no starts without a permit first, and a continued decline in permitting is worrisome, reflecting builder concerns about both costs and the longer-term macroeconomic outlook. Last month's drop in permits was largely driven by a decline in permitting activity for multifamily units, a reversal of recent trends and a sign that the furious activity we've been seeing in the multifamily sector could be cooling. To date, permits and starts for single-family homes – typically the kind of detached, picket-fence, suburban ideal that most buyers still at least say they prefer – have not rebounded in the same way as construction activity in much larger, denser, typically urban multifamily projects. In the 1990s we permitted 3.4 single-family homes for every multifamily home; right now we are permitting less than two single-family homes for every multifamily permit. If we were permitting single-family homes at the same pace today relative to multifamily permits as we did in the 1990s, there would be about 700,000 more single-family homes being permitted.