In a surprising turn of events, new data released by the government indicates that housing starts in the United States have climbed by 3% to a seasonally adjusted annual rate of 1.35 million units in June, up from May’s revised figure of 1.31 million. This surge in activity can be primarily attributed to a rise in multi-family building projects, which have gained considerable momentum in response to the ongoing inventory shortage of existing homes. According to insights from BMO Economics, Senior Economist Jay Hawkins highlighted that the unexpected increase is largely driven by reduced mortgage rates, allowing builders to ramp up construction efforts to alleviate the current supply crunch in the housing market.
Interestingly, while June's figures show a month-over-month improvement, the overall number of housing starts has decreased by 4.4% when compared to the same period last year. Diving deeper into the specifics, starts for multi-family buildings—those comprising at least five units—have seen an impressive month-over-month surge of 22%, totaling 360,000.
However, this area also reflects a notable year-over-year decline of 23%. In contrast, the single-family home sector has witnessed a downturn, with starts falling by 2.2% sequentially to 980,000 units, although there is a 5.4% increase compared to the previous year’s figures. Geographically, the data illustrates a variably recovering housing market: the Northeast experienced a robust 34% increase in starts, while the Midwest saw a 27% uplift.
Conversely, both the West and South regions reported declines, with starts down 6.1% and 1.7% respectively. Despite these recent gains in housing starts, the overall levels remain nearly 20% below the March 2022 benchmark, a period coinciding with the Federal Reserve's initiation of monetary tightening measures.
Additionally, single-family starts have now seen a reduction for four consecutive months, suggesting ongoing challenges in this segment of the market. Looking ahead, building permits—which serve as a forward-looking indicator—have also demonstrated an upward trend, saw a 3.4% increase to 1.45 million units, surpassing Wall Street expectations of 1.4 million permits.
Notably, multi-family authorizations leaped approximately 19%, while single-family permits decreased by 2.3% on a seasonally adjusted basis, reflecting the challenges apparent in the housing market. Over the year, the overall number of permits has decreased by 3.1%, indicating potential long-term concerns about housing supply. Hawkins further commented on the market's resilience, stating, "The rebound in housing starts and building permits in June suggests the housing market continues to heal, although a considerable drop in mortgage rates is needed to improve affordability and boost home demand." As of mid-July, the average 30-year fixed mortgage interest rate stood at an elevated 6.89%, which, while lower than the peak of 7.22% in early May 2024, continues to pose challenges for prospective homebuyers. In terms of home completions, the data indicates a notable 10% increase month-over-month, bringing the total to 1.71 million units.
However, challenges persist as evidenced by recent reports from the National Association of Home Builders and Wells Fargo, which indicated an unexpected downturn in homebuilder confidence for July, attributed largely to rising mortgage and construction loan rates that are impacting overall market sentiment..