US Housing Starts

US Housing Starts Drop, But Gains Elsewhere

Housing starts undershot estimates with a -7.0% July drop to a 3-month low of 1.534 mln, though it followed 55k in upward revisions that took the edge off the surprise. Starts remain well below the 15-year high of 1.725 mln in March. Building permits bucked the drop with a 2.6% July gain to a 1.635 mln pace from 1.594 mln, versus a 15-year high of 1.883 mln in January. The remaining measures beat estimates.

We saw a 0.4% rise for starts under construction to a 1.373 mln pace after 13k in upward revisions that left a 14-year high. Housing completions surged 5.6% to a 1.391 mln clip in July after small offsetting revisions. The July starts drop was troublesome, but gains in the remaining major metrics, and upward revisions in nearly all the measures, mitigated some of the headline starts damage. We still expect GDP growth of 7.0% in Q3, after a Q2 growth boost to 7.1% from 6.5%.

  • Housing starts fell -7.0% to a 1.534 mln pace after 55k in revisions, versus a 15-year high of 1.725 mln in March, leaving a 2.5% y/y gain.
  • Building permits rose 2.6% to a 1.635 mln pace, versus a 15-year high of 1.883 mln in January, leaving a 6.0% y/y gain.
US Housing Starts
US Housing Starts

Starts under construction rose by 0.4% to a 14-year high of 1.373 mln in July after offsetting revisions, leaving a 14.5% y/y rise. This measure continues to climb rapidly in the face of robust demand for both new and existing homes.

Housing completions rose 5.6% to a 1.391 mln clip in July after small offsetting revisions, leaving a 3.8% y/y gain. We saw a 14-year high pace of 1.497 mln in March. Completions continue to fall short of assumptions, likely due to shortages of materials and labor.

July starts weakness was heavily skewed to the northeast. Starts plunged by a hefty -49.3% in the northeast, -11.3% in the west, and -6.9% in the midwest, but rose by 2.1% in the south.

Single family starts fell -4.5% to a 1.111 mln pace, after jumping 5.9% in June to a 1.163 (was 1.160) mln clip. Multifamily starts tumbled -13.1% to a 0.423 mln rate, versus the -1.8% slide to 0.487 (was 0.483) mln clip.

We think housing starts will be flat in Q3, following a -3.2% (was -7.6%) Q2 contraction rate that left a quarterly pace of 1.586 mln, versus a 15-year high quarterly pace of 1.599 mln in Q1. We expect an 15% rise for starts in 2021, after an 8% rise in 2020.

We peg permit growth at -1% in Q3 that would leave a 1.665 mln clip, after a -23.9% Q2 pullback to a 1.670 mln clip from a 15-year high quarterly pace of 1.788 mln in Q1. We expect a 15% rise for permits in 2021, after a 7% rise in 2020.

Starts under construction, which drive the residential component of GDP, look poised for 13% Q3 growth to a 15-year high quarterly pace of 1.385 mln, following 16.5% (was 15.0%) Q2 growth to an existing 15-year high quarterly pace of 1.344 (was 1.339) mln. We expect a 12% rise for the series in 2021, after a 6% rise in 2020.

Overall, the 2021 climb for starts has been disappointing, despite an historic shortage of homes for sale and soaring home prices, as builders have found winter rates of construction to be unsustainable. It may be that capacity constraints are more of an obstacle in the spring building season than in the off-season, which suggests that the seasonally adjusted housing data will strengthen into the winter as seasonal factors become more supportive.

We still expect a Q2 GDP growth boost to 7.1% from 6.5%, with hikes of $22 bln for consumption, $13 bln for inventories, and $1 bln for private construction, but downward bumps of -$4 bln for net exports and -$2 bln for public construction.

We expect Q3 GDP growth of 7.0% in Q3, with a -1% residential construction drop after an estimated Q2 contraction rate of -10.3% (was -9.8%). We expect a Q3 nonresidential construction contraction rate of -4%, after an estimated -5.3% (was -7.0%) pace in Q2. We expect -1% contraction rate for government purchases in Q3, after an estimated -1.7% (was -1.5%) in Q2.

The NAHB housing index fell to 75 in August from 80, leaving the first reading in twelve months that sits below the all-time high from the last expansion of 76 seen in December of 2019. The measure is now well below the all-time high of 90 in November of 2020.

The MBA purchase index has followed a disappointing path in 2021, and is tracking a -2.3% August drop, after declines of -2.4% in July, -2.0% in June, -5.1% in May and -4.5% in April. The purchase index marked a 15-month low at the end of July, versus a 12-year high in mid-January.

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