Commentary on July housing starts and permits

Scott Volling, principal, PwC, offered the following commentary on recently released statistics on July housing starts and permits:

Housing starts for July came in at 1,168,000, 7.3% below the consensus of 1,260,000 and only 0.9% above last month’s number of 1,158,000, which was revised down by 15,000 units.  This is the worst two month stretch for starts since April/May of last year.  Permits fared only slightly better, coming at 1,311,000 for the month, essentially flat with consensus and 1.5% above last month’s number of 1,292,000, which was revised upward by 19,000 units.  Single-family starts and permits, 862,000 and 869,000, respectively, mirrored the overall results and were proportionate to recent months, when ideally, we would see accelerating rates of single-family starts and permits relative to multi-family in the current environment.

Other than total permits above the symbolic 1,300,000 level, there is little positive to find in this report.  June results were surprisingly disappointing and were subsequently revised downward by 15,000 units.  To follow that up with a marginally higher July number reflects a two-month trend that seems reflective of yesterday’s report that builder sentiment dropped to it’s lowest level in 11 months.

While for-sale inventory is still at historical lows, there has been an uptick in the last month or two, slightly easing supply constraints and perhaps providing more options for prospective buyers, ultimately hurting the builders.  Further, mortgage rates continue to tick upward and builders may be muting how aggressive they build based on internal projections of future shifts in demand.

June appeared to be an anomaly, but July results indicate a trend.  With permits still fairly solid, we will need to see if the trend continues into the late summer/early fall or if recent permits translate to stronger starts in the coming months.

Following is the supporting data:

Starts: 1,168,000

• Consensus: 1,260,000 (-7.3%)
• Last Month: 1,158,000 (revised downward from 1,173,000) (+0.9%)
• Last Year: 1,185,000 (-1.4%)

Permits: 1,311,000

• Consensus: 1,307,000 (%)
• Last Month: 1,292,000 (revised upward from 1,273,000) (+1.5%)
• Last Year: 1,258,000 (+4.2%)

Single Family: 862,000

• Last Month: 854,000 (revised downward from 858,000) (+0.9%)
• Last Year: 839,000 (+2.7%)

Multi Family: 303,000

• Last Month:294,000 (revised downward from 304,000) (%)
• Last Year: 335,000 (-9.5%)