According to estimates from the U.S. Housing and Urban Development and Commerce Department, the pace of single-family construction continued to improve in July. After reaching a post-winter low annualized rate of 814,000 in April, single-family starts expanded to an 876,000 pace in July, a 1.3% gain over the revised June estimate. However, single-family starts remain 3.3% lower a on a year-to-date basis due to slower months earlier in 2019.
Given reduced mortgage interest rates and improved inventory levels, we expect continued modest gains for single-family construction bringing 2019 totals to relatively flat conditions. This matches the signal provided by the NAHB/Wells Fargo HMI, which improved to a positive level of 66 in August. Indeed, single-family permits, a leading indicator, also improved in July, expanding by 1.8%, although remaining lower on a year-to-date basis by 4.7%.
Total housing starts were down 4% in July, but that decline was concentrated in the multifamily sector as forward-looking rental demand softened on gains for for-sale housing affordability. Multifamily starts (2+ unit production) were off 16% in July, while 5+ unit production is down 2.3% on a year-to-date basis. However, 5+ unit multifamily permits posted a large gain in July, rising 25% to a 453,000 annualized rate and coming in at 1% gain for the year thus far.
Single-family units authorized (permitted) but not start construction continue to trend lower, an indication of improved inventory conditions after the housing soft patch that began last year. In July, there were 86,000 single-family units authorized that had not begun construction. This was lower than the 94,000 estimate from a year earlier, and lower than the peak count of 103,000 in December.
On a regional and year-to-date basis, single-family starts are down 12% and 9% in the housing affordability challenged Northeast and West respectively, 8% in the weather and agriculture focused Midwest, and up almost 2% in the South.
Recent construction dynamics are reflected in the current estimates of housing units under production. As of July 2019, there were 517,000 single-family homes under construction. This is 1.3% lower than July 2018, and it is down from the 545,00 peak count from January 2019. Similarly, there are currently 617,000 apartments under construction, which is more than 3% higher than a year ago and down from the peak count of 623,000 in February 2017. The combination of these declines in current construction activity are seen clearly in the graph below, with declines for total housing under construction for all of 2019. This is responsible for a slight decline in housing’s share of GDP.