| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| Starts - Annual Rate | 1.305M | 1.248M to 1.400M | 1.353M | 1.277M | 1.314M |
| Permits - Annual Rate | 1.395M | 1.310M to 1.450M | 1.446M | 1.386M | 1.399M |
Highlights
Driven by multi-unit demand, housing starts jumped 3.0 percent in June to a higher-than-expected 1.353 million annual rate with permits also beating expectations, up 3.4 percent to 1.446 million. Adding further to starts are sharp upward revisions to the two prior months, to 1.314 from 1.277 million for May and to 1.377 from 1.352 for April.
The prospect that mortgage rates had peaked and that Federal Reserve rate cuts were on the horizon likely gave a push to builder activity in June. Yet even with the gains, starts continue to trend near four-year lows with permits near year-and-a-half lows. Year-over-year, starts are down 4.4 percent and permits down 3.1 percent.
And June readings for the key single-family category are less than favorable, down 2.2 percent on the month for starts to a 980,000 rate and down 2.3 percent to 934,000 for permits. High prices for single units are at play, raising relative demand for more affordable multi-unit structures. Permits for the 5-unit-plus category jumped 19.2 percent to a 460,000 rate from May's 386,000. When adding in the 2- to 4-unit category, permits jumped 15.6 percent to 512,000 from 443,000.
And prices for the 5-unit category may become even more affordable given a surge of completions for this category coming on the market, to a 656,000 rate from May' 520,000. Single-family completions rose less spectacularly, to 1.037 from 1.019 million.
Today's report gives a general lift to the housing outlook suggesting that builders are positioning themselves for a more favorable rate environment. The better-than-expected results give a lift to Econoday's Relative Performance Index which stands at 17 for one of the best levels since late May, indicating that recent US data on net are now coming in above economic forecasts.
The prospect that mortgage rates had peaked and that Federal Reserve rate cuts were on the horizon likely gave a push to builder activity in June. Yet even with the gains, starts continue to trend near four-year lows with permits near year-and-a-half lows. Year-over-year, starts are down 4.4 percent and permits down 3.1 percent.
And June readings for the key single-family category are less than favorable, down 2.2 percent on the month for starts to a 980,000 rate and down 2.3 percent to 934,000 for permits. High prices for single units are at play, raising relative demand for more affordable multi-unit structures. Permits for the 5-unit-plus category jumped 19.2 percent to a 460,000 rate from May's 386,000. When adding in the 2- to 4-unit category, permits jumped 15.6 percent to 512,000 from 443,000.
And prices for the 5-unit category may become even more affordable given a surge of completions for this category coming on the market, to a 656,000 rate from May' 520,000. Single-family completions rose less spectacularly, to 1.037 from 1.019 million.
Today's report gives a general lift to the housing outlook suggesting that builders are positioning themselves for a more favorable rate environment. The better-than-expected results give a lift to Econoday's Relative Performance Index which stands at 17 for one of the best levels since late May, indicating that recent US data on net are now coming in above economic forecasts.
Market Consensus Before Announcement
Housing starts in June are expected to rebound to a 1.305 million annual rate versus May's much lower-than-expected 1.277 million rate. Permits, at 1.399 million in May and which were also much lower than expected, are seen steady at a 1.395 million rate.
Definition
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.
Description
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.
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.
