Flat Conditions for Housing Starts

Total housing starts posted a slight increase in July as markets face headwinds in the form of rising construction costs and growing affordability concerns. Total housing starts increased 0.9% in July and are 6.2% higher for 2018 on a year-to-date basis, according to the joint data release from the Census Bureau and HUD.

The pace of single-family starts was roughly flat in July, increasing 0.9% in July to a seasonally adjusted annual rate of 862,000. Recent construction trends for single-family match the solid but slightly lower levels of the NAHB/Wells Fargo Housing Market Index, now registering a score of 67. However, builders continue to report concerns about ongoing labor access issues and elevated prices for softwood lumber, although recent weeks have seen price declines.

On a year-to-date basis, single-family starts are 7.2% higher as of July relative to the first seven months of 2017, performing slightly worse than our forecast. Single-family permits, a useful indicator of future construction activity, were up slightly (1.9%) in July and have registered a 7.5% gain thus far in 2018 compared to last year.

It is also worthwhile to note that there have been gains in the count of homes for which permits have been authorized but construction has not started. For single-family homes, there are currently 97,400 permitted units that have not begun construction. This is up 25% from July of 2017, when the total was 77,800. This increase is consistent with NAHB survey data indicating a pause in some planned construction activity due to the increase in building material costs during the first part of 2018. A similar trend is exhibited in multifamily development, where the count of 5+ multifamily units authorized but not started construction has increased 24%.

Multifamily starts (2+ unit production) were also up slightly in July to a 306,000 annual rate. After a strong start to the year, multifamily development is returning to the forecasted slowing trend. On a year-to-date basis, multifamily 5+ unit production is 3.4% higher thus far in 2018, ahead of forecast.

With respect to housing’s economic impact, 54% of homes under construction in July were multifamily (601,000). The current count of apartments under construction is down slightly from a year ago. In July, there were 521,000 single-family units under construction, a gain of more than 12% from this time in 2018.

Regional data show – on a year-to-date basis – mostly positive conditions. Multifamily declines in the Northeast have total starts in this region down 4%,; however, Northeast single-family production is up 7.4% for the year. In the Midwest, single-family starts are down 1.7% for the year, while single-family construction is up 15.7% in the West and 6% in the South.



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