Housing starts are down 8.0 percent in June to a 1.434 million unit annual rate compared to a downward revision to 1.559 million units to May. Starts are below the consensus of 1.480 million units in the Econoday survey of forecasters. Although the June level is a sizeable decrease, it remains the second highest since 1.463 million in September 2022, just before homebuilders scaled back construction significantly when mortgage rates were rising toward to 7 percent-mark. Starts are down 8.1 percent year-over-year.

It is possible that extreme heat and poor air quality in June delayed some outdoor construction activity. The demand for new housing remains strong with limited supplies of existing units on the market. Homebuyers who have prequalified for mortgages at lower rates will be anxious to exercise them before the rate locks expire. Actual home purchases may be ahead of starts.

Starts of single-family homes are down 7.0 percent to 935,000 in June from 1.005 million units in May. This is the second highest level since 1.010 million in June 2022 when it looked like new homebuyers for single-family units were reconsidering in favor of multi-units. Single-family unit sales are down 7.4 percent year-over-year.

The volatile 5+ unit sector is down 11.6 percent to 482,000 in June after a sharp increase to 545,000 in May, and are down 11.6 percent year-over-year. Starts of multi-units have not seen the same drop-off that have hit the single-family sector as homebuyers remained more active there due to a more affordable price point. Total multi-units (total starts less single-family) are down 9.9 percent month-over-month and 9.4 percent lower year-over-year.

Permits issued are down 3.7 percent in June to 1.440 million after 1.496 million in May which was well above the 1.417 million in April. The number of permits issued in June is below the consensus of 1.483 million in the Econoday survey. The underlying trend for issuing permits seems to be fairly steady in recent months. However, it is well below the busy housing market of a year ago. Permits are down 15.3 percent compared to June 2022, but the single-family home sector appears to be gaining ground.

Permits for single-family homes are up 2.2 percent to 922,000 in June after 902,000 in May and are the highest since 948,000 in June 2022. Permits for all multi-unit homes are down 12.8 percent to 518,000 in June from 594,000 in May, and are 31.2 percent lower year-over-year. Again, low stocks of existing homes is driving demand for new single-family construction.

After surging by more than 20 percent in May to 1.631 million, housing starts in June are expected to fall back to a 1.480 million annualized rate that would, nevertheless, be far above April's 1.340 million rate. Permits, which jumped by more than 5 percent in May to 1.491 million, are expected to edge down to 1.483 million.

Housing starts measure the initial construction of single-family and multi-family units on a monthly basis. Data on permits provide indications of future construction. A housing start is registered at the start of construction of a new building intended primarily as a residential building. The start of construction is defined as the beginning of excavation of the foundation for the building.

Two words: Ripple Effect. This narrow piece of data has a powerful multiplier effect through the economy, and therefore across the markets and your investments. By tracking economic data such as housing starts, investors can gain specific investment ideas as well as broad guidance for managing a portfolio.

Home builders usually don't start a house unless they are fairly confident it will sell upon or before its completion. Changes in the rate of housing starts tell us a lot about demand for homes and the outlook for the construction industry. Furthermore, each time a new home is started, construction employment rises, and income will be pumped back into the economy. Once the home is sold, it generates revenues for the home builder and a myriad of consumption opportunities for the buyer. Refrigerators, washers and dryers, furniture, and landscaping are just a few things new home buyers might spend money on, so the economic"ripple effect" can be substantial especially when you think of it in terms of more than a hundred thousand new households around the country doing this every month.

Since the economic backdrop is the most pervasive influence on financial markets, housing starts have a direct bearing on stocks, bonds and commodities. In a more specific sense, trends in the housing starts data carry valuable clues for the stocks of home builders, mortgage lenders, and home furnishings companies. Commodity prices such as lumber are also very sensitive to housing industry trends.

Importance
The housing starts report is the most closely followed report on the housing sector. Housing starts reflect the commitment of builders to new construction activity. Purchases of household furnishings and appliances quickly follow.

Interpretation
The bond market will rally when housing starts decrease, but bond prices will fall when housing starts post healthy gains. A strong housing market is bullish for the stock market because the ripple effect of housing to consumer durable purchases spurs corporate profits. In turn, low interest rates encourage housing construction.

The level as well as changes in housing starts reveals residential construction trends. Housing starts are subject to substantial monthly volatility, especially during winter months. It takes several months to establish a trend. Thus, it is useful to look at a 5-month moving average (centered) of housing starts.

It is useful to examine the trends in construction activity for single homes and multi-family units separately because they can deviate significantly. Single-family home-building is larger and less volatile than multi-family construction. It is more sensitive to interest rate changes and less speculative in nature. The construction of multi-family units can be substantially influenced by changes in the tax code and speculative real estate investors.

Housing construction varies by region as well. The regions of the United States do not all follow exactly the same economic patterns because industry concentration varies in the four major regions of the country. The regional dispersion can mask underlying trends. The total level of housing construction as well as the regional distribution of housing construction is important.

Housing permits are released together with housing starts every month and are considered a leading indicator of starts. In reality, housing permits and starts typically move in tandem each month. However, there are some exceptions. For instance, if permits are issued late in the month, and weather does not permit immediate excavation, then permits might lead starts. For the most part, though, permits are not a good predictor of future housing starts. Incidentally, housing permits (but not starts) are one of the ten components of the index of leading indicators compiled by The Conference Board.