Mixed Messages For US Housing Activity In July

Housing Starts inched higher in July, reaching a new post-recession peak of 1.206 million units (seasonally adjusted annual terms). That’s encouraging, but the news is tempered by the sharp deceleration in the year-over-year trend. The net result: residential construction activity continues to increase, but it’s still not clear that we’ll see much more than modest growth at best in the near term.

The surprisingly sharp slide in newly issued building permits adds weight to the cautious outlook. This leading indicator for construction activity tumbled to its lowest level since March: 1.119 million units (seasonally adjusted annual rate). The retreat in July vs. June represents the biggest monthly tumble for permits since 2008.

Although recent updates paint a volatile profile on a month-to-month basis for housing activity, it’s worth remembering that the current annual pace of growth for starts and permits—10.1% and 7.5%, respectively—is a healthy rate.


The question is whether the market can continue to hold on to the current expansion trend? Yesterday’s sentiment data for the home building industry offers an upbeat forecast.

Indeed, builder confidence inched up to its highest level in nearly a decade in August—61—according to the National Association of Home Builders (NAHB). A reading above 50 indicates that more than half of the builders have a favorable outlook. “The fact the builder confidence has been in the low 60s for three straight months shows that single-family housing is making slow but steady progress,” said NAHB Chairman Tom Woods in a press release.

The NAHB data imply that residential housing construction will continue to rise. “There’s enough demand and there’s a little catch-up going on here in terms of housing construction,” Eric Green, head of U.S. economic research at TD Securities, tells Bloomberg.

It’s fair to say that housing continues to be a net positive for the economy. It’s not a blow-out performance, but for the moment there’s a decent rate of forward momentum in construction activity. The one glitch, maybe, is the tumble in permits. A one-off event? Or an early warning for housing? For the moment, home builders are inclined to go with the former.