In the latest report by the Census Bureau, housing starts decreased to a seasonally adjusted annual rate of 1.238 million in July, the lowest level since May 2020. The latest data fell short of the forecasted rate of 1.340 million. This marks a 6.8% decrease from June and a 16.0% decline compared to one year ago.
Here is the opening of the monthly report:
Privately-owned housing starts in July were at a seasonally adjusted annual rate of 1,238,000. This is 6.8 percent (±10.3 percent)* below the revised June estimate of 1,329,000 and is 16.0 percent (±10.5 percent) below the July 2023 rate of 1,473,000. Single-family housing starts in July were at a rate of 851,000; this is 14.1 percent (±8.3 percent) below the revised June figure of 991,000. The July rate for units in buildings with five units or more was 363,000.
Background on Housing Starts
Housing starts track how many residential buildings began construction in the preceding month. The data is divided into three types of structures: single-family homes, residences with 2-4 units (condos or townhouses), and structures with 5+ units (apartment complexes). A critical aspect of the home-building industry is the powerful influence it has on the rest of the economy.
Here is the historical series for total privately-owned housing starts, which dates from 1959. Because of the extreme volatility of the monthly data points, a six-month moving average has been included.
Housing Starts: The Population-Adjusted Reality
Here is the data with a simple population adjustment. The Census Bureau's mid-month population estimates show substantial growth in the US population since 1959. Here is a chart of housing starts as a percent of the population. We've added a linear regression through the monthly data to highlight the trend.
Housing Starts: A Footnote on Volatility
The extreme volatility of this monthly indicator is the rationale for paying more attention to its six-month moving average than to its noisy monthly change. Over the complete data series, the absolute MoM average percent change was 6.3%. The MoM range minimum was -26.4% and the maximum was 29.3%. The latest month-over-month percent change is 6.8%.
For visual confirmation of the volatility, here is a snapshot of the monthly percent change since 1960.
A Long-Term Look: Residential Building Permits and Housing Starts
In addition to housing starts, the U.S. Census Bureau and the Department of Housing and Urban Development published their July findings for new residential building permits. Despite the fact that both are monthly seasonally adjusted annualized rate (SAAR) series, they are exceptionally volatile and subject to extensive revisions. Thus it is unwise to assign much significance to a single month.
Over the long haul, however, the two offer a compelling study of trends in residential real estate, especially when we adjust the permits and starts for population growth. Here is an overlay of the two series since the 1959 inception of the starts data and the 1960 inception of the permits data. The monthly data points are preserved as faint dots. The trends are illustrated with six-month moving averages of data divided by the Census Bureau's mid-month population estimates.
Here is a closer look at the overlay since 1990.
ETFs associated with home builders include: Invesco Dynamic Building & Construction ETF (PKB), iShares U.S. Home Construction ETF (ITB) and SPDR S&P Homebuilders ETF (XHB).
ETFs associated with residential real estate include: iShares Residential and Multisector Real Estate ETF (REZ).
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