Key Takeaways:
- Pace is at the lower end of the 10-month trendline;
- Multifamily segment down much more than single-family;
- Northeast hit hardest with a decline of 49%, while South rises by 2%;
- On the positive side, houses started through July remain at their highest levels since 2006.
By Manuel Gutierrez, Consulting Economist to NKBA
Housing starts dipped by a substantial 7% in July, following two months of gains. It currently stands at an annual rate of 1.53 million units. This pace is at the low end of the annualized rate of 1.50 million to 1.75 million units seen since last October (Figure 1).
At the same time, housing permits experienced gains in July for the first time in four months, rising to an annual rate of 1.64 million units.
Despite the increase in permits, there are many reasons why it isn’t likely to translate into higher levels of new housing construction in the near future. For one, the Wells-Fargo/NAHB housing market index hit another low in August and has been in a virtual free-fall since November 2020, reflecting pessimism among builders.
Despite concerns going forward, housing starts through July are the highest since 2006.
More consumers are also pessimistic about the future, believing it’s not a good time to buy a home. Additionally, overall prices of consumer goods and services are rising and the COVID-19 Delta variant is creating fear and concern.
Both the single-family and multifamily segments of new housing construction fell in July, but the latter was hit much harder. U.S. multifamily starts fell by 13.1% to an annual rate of 423,000 units, driven mostly by a slightly higher decline in buildings with five or more housing units, which fell by 13.6% to 412,000 units (Figure 2).
Relatively few buildings fall within the two-to-four-unit range. They mostly consist of duplexes, and their annual start rate, based on July figures, was a meager 10,000 units.
Single-family housing, which accounts for nearly three-quarters of all new construction, fell by 4.5% to 1.1 million housing starts for the month.
The news is not all grim, however. Year-to-date through July, builders have started construction on more homes than last year. The 934,000 built this year are a sizable 168,000, or 22%, above last year.
The comparison to last year may not be totally realistic based on the low level of housing construction during the March-to-May 2020 period of last year during the COVID-19 economic plunge.
Nonetheless, the number of housing starts so far this year is at its highest since 2006, when 1.146 million houses had been started through July.
Want to know where the population is moving? Check out the regional contribution to the year-to-date change in housing starts (Figures 3 and 4). The South and West lead with the highest number of single-family units started.
On the multifamily side, 24,000 more units have been built so far this year than in 2020. The majority of them are in the West, which is up by 14,900 units. The region accounts for more than 60% of the nation’s increase.
Figure 4 shows the regional trend in housing starts over the last year. Three of the four regions faced a drop in July starts, with the Northeast showing the largest percentage decline: a hefty 49%.
Along with the Midwest, which had a 7% drop in starts in July, the Northeast has shown a declining trend in housing starts activity for several months. The continuous dark blue lines for both regions show a declining bias virtually since the beginning of the year.
Starts in the West fell by 11% in July, but this region has been trending flat over the last few months.
Finally, starts for the South were up a modest 2% in July, to an annual rate of 889,000 units. More important was the continuation of the positive trend — with some bumps — the region has experienced since the beginning of the year.
