Housing starts in June totaled 1.173mm, well less than the estimate of 1.32mm and May was revised down by 13k to 1.337mm. The contribution to the miss was from both single family starts and multi family. Single family starts in particular fell to the lowest level since December at 858k. Also of note was the 78k m/o/m drop in multi family construction which fell to 315k, the least since August 2017.
Due to the volatile nature of the data month to month it is only fair to average out the numbers to get a better view of trend. The 3 month average for starts is 1.262mm vs the 6 month average of 1.29mm and both compare to the 2017 average of 1.21mm. Looking specifically at single family which remains well below long term trends, the 3 month average is 900k vs the 6 month average of 895k and the 2017 average of 852k.
The level of permits softened m/o/m as well but it was all due to a drop in multi family as they fell by 35k to 423, the lowest since last year. Single family permits rose 7k m/o/m after dropping by 20k in May.
Bottom line, the pace of single family starts while improved this year versus last has flattened out over the past few months at a rate that is still 15% below the 25 year average and 53% less than the bubble peak in January 2006 but, the best in this cycle. There is this conundrum in housing in that the area of the greatest demand for new homes are for those priced close to $250,000 but it is at that price point that makes it very difficult for builders to deliver a profitable product due to the high costs of labor and materials. Thus, with the average home more expensive, the first time buyer is more renting instead of owning. On the multi family side, we’ll watch to see if this moderation in both starts and permits is the beginning of banks calling a time out on construction in light of the large amount of supply coming on line.
While I still have your attention, the yield curve is of course a daily discussion and obsession. Fed President Esther George chimed in last night and added her own opinion of what is causing it. “The Fed’s large holdings of Treasury securities may be keeping longer term rates below where they otherwise would be and, therefore, distorting the signal from the yield curve.”
Lastly, I pointed out this morning that in the weekly II data, those expecting a Correction fell to the lowest level since late January. Also, the VIX this morning touched its lowest level since January 26th.
SINGLE FAMILY STARTS