Data Watch

Housing starts increased 14.6% in June To view this article, Click Here
Brian S. Wesbury - Chief Economist 
Robert Stein, CFA - Senior Economist
Date: 7/19/2011

Housing starts increased 14.6% in June to 629,000 units at an annual rate, easily beating the consensus expected pace of 575,000.  Starts are up 16.7% versus a year ago. 

The increase in June was about evenly split between multi-family starts, which rose 30.4% (and which are extremely volatile from month to month) and single-family starts, which rose 9.4%. Multi-family starts are double levels from a year ago while single-family starts are up 0.4%. 

Starts rose in all major regions of the country. 

New building permits increased 2.5% in June to a 624,000 annual rate, also easily beating consensus expectations. Compared to a year ago, permits for multi-unit homes are up 34.0% while permits for single-family units are down 3.8%.

Implications:  Housing starts spiked higher in June, rising 14.6%, well above consensus expectations. The gains were about evenly split between the volatile multi-family sector, which has been trending higher since late 2009, and single-family homes. This gain supports our view from a couple of months ago that the dip in home building in the Spring was due to the unusually wicked tornado season. The details of today’s report were strong as well. Building permits, a sign of future activity, beat consensus expectations and the total number of homes under construction increased for the first time since 2006. Starts are not going to increase every month, but home building is set to trend higher over the next several years. Population growth and “scrappage” rates suggest that once the excess inventory of homes is cleared that the underlying trend for building activity is about 1.6 million starts per year. That’s about 2.5 times current levels. In other words, home building must increase substantially just to get back to “normal” levels, not even to go back to the overbuilding of the prior decade. For at least the near term, growth in multi-family construction should outpace the growth in single-family units. There is an ongoing shift toward renting rather than owning. Part of that shift is due to tight credit conditions which are unlikely to disappear very soon.

This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy.

This article can be found at:

http://www.ftportfolios.com/Commentary/EconomicResearch/2011/7/19/housing-starts-increased-14.6percent-in-june