August 16, 2017 – Housing starts track the number of new residential construction projects underway over the course of a month. This indicator has implications for demand in construction spending/jobs, consumer wages, and complimentary sectors such as durable household item sales. Along with building permits, housing starts is considered a leading economic indicator.
Housing starts in July came in at an annualized rate of 1.155 million, below expectations of an annualized rate of 1.174 million and 4.8% below June’s downward revision of 1.213 million. Single-family starts remained steady at 856,000, an 11% year-over-year gain. Multi-family starts fell to 299,000 in July from a rate of 353,000. Permits for single-homes experienced a 13% yearly gain while multi-family permits are down 10%.
July’s 4.8% drop in housing starts displays a falling in confidence in home builders that the house will sell upon completion. A lower housing start rate means construction employment falls as well as the quantity of building materials used to build homes. Declines in employment and the purchase of building materials will not push as much money through the economy compared to higher housing starts. Also, lower starts has a ripple effect with other goods and services that are associated with buying a home such as furniture, appliances, landscaping and yard work. The multi-family component of housing starts tends to be highly volatile, therefor casting some blame for large swings in housing starts month to month. Another factor that could be playing a role in lower housing starts is a decrease in the homeowner vacancy rate. According to the U.S. Bureau of the Census, the homeowner vacancy rate dropped 11.8% from second quarter 2016, signaling families are moving into existing homes instead of building new ones. July’s starts levels are still above March and April’s levels after its decline from June.