US housing starts fell more than expected in June, data out Tuesday showed.
Last month’s 1.559 million pace was slightly below the 1.58 million rate economists expected. The range of estimates, from more than five-dozen “professionals,” was 1.41 million to 1.65 million.
The 2% monthly decline was the second consecutive and made for a somewhat dubious encore following May’s big drop which, after the revisions accompanying Tuesday’s data, no longer counted as the largest of the pandemic era (figure below).
June’s pace matched that seen in September, which is a euphemistic way of saying “nine-month low.” It’s also consistent with levels seen in late 2019, in the months just prior to the onset of the pandemic.
As a reminder: Housing starts aren’t supposed to be falling yet. Theoretically, higher rates should only impact starts on a (considerable) lag in a market where the vacancy rate is low.
June marked the second straight month during which starts fell on a 12-month basis. Every recession going back six decades was accompanied by sharp annual declines in housing starts. The only exception was the dot-com bust. Maybe this time is different. But I doubt it.
Single-family starts fell again in June. At 982,000, last month was the first time in two years that the pace of single-family starts fell below one million (figure below).
June’s rate was the slowest in two years, and marked the fourth straight monthly decline.
Multifamily starts rose, and although permits dropped, they beat estimates.
The data came a day after the latest read on the NAHB index showed homebuilder sentiment dropped the second most on record in July.
As the figure (above) shows, sentiment has now caught up (or “down,” I guess) to the ongoing drop in activity.
Backlogs remained robust. The number of homes authorized by not started continued to loiter at elevated levels last month, Tuesday’s government data showed.
Set against new home sales, the juxtaposition is stark (figure below). I’ll be the first to admit I’m not sure what that portends, but it may suggest America is sitting atop an inventory overhang without realizing it.
I’ve said this a thousand times if I’d said it once: Affordability is very challenging right now for the average family, and the median new home price is considerably higher than the median price of existing homes.
Builders spent the better part of two years frantically trying to backfill supply to meet voracious demand, and it’s my contention that by the time some new construction is finished, demand will be severely impaired by higher rates, inflation and a less favorable economic backdrop in the US. Not all of that new construction is under contract. At the very least, buyers will need concessions to absorb it. Investors may be even more demanding when it comes to concessions — after all, they’ve got cash.
If you think any of that sounds far-fetched considering favorable demographics for the housing market and the notion that supply has fallen woefully short of demand in the post-pandemic era, I’d implore you to consider that market participants said the same thing when a few, lonely analysts began to warn about excess inventory at America’s largest retailers earlier this year.
Housing is set for a slowdown- it is one of the vehicles the FOMC is using to slow demand.