US Housing Starts Surge with Multifamily Construction Pickup

Discover the latest data showing a significant increase in US housing starts driven by a rise in multifamily construction projects.

New US home construction showed signs of improvement in June, with total housing starts increasing by 3% to a 1.35 million annualized rate. However, a decline in single-family housing starts to an eight-month low highlighted the challenges faced by the real estate market, particularly due to high interest rates. The government data released on Wednesday revealed a 19.6% surge in multifamily construction, driving the overall increase in housing starts.

Despite the overall growth in construction activity, starts of one-family homes fell for the fourth consecutive month. Building permits, which serve as a proxy for future construction activity, also saw a 3.4% increase to a 1.45 million annual rate, driven by a rise in applications for multifamily projects. However, authorizations for single-family homes decreased by 2.3% to the slowest pace in over a year, indicating a slowdown in this segment.

The report also highlighted a decrease in the number of homes under construction, reaching the lowest level since the beginning of 2022. This suggests that builders are adjusting their inventory levels to better align with current demand in the market.

Prior to the release of this report, the Federal Reserve Bank of Atlanta's GDPNow forecast predicted a 2.8% annualized decline in residential investment during the second quarter. Builder sentiment has also been affected, with the latest index of builder sentiment reaching a low point for the year. The industry is hopeful that the Fed will soon start reducing interest rates, following a recent inflation report showing a cooling of price increases across the economy. Mortgage rates have remained stagnant near 7% for an extended period, prompting builders to offer discounts and incentives to boost sales.

The Commerce Department's report also indicated a significant 10.1% increase in total housing completions, reaching the highest level since 2007, primarily driven by a surge in multifamily projects. It is important to note that housing starts data can be volatile, with the government report indicating a 90% confidence level that the monthly change ranged from a 7.5% decline to a 13.5% gain.

While the overall increase in new home construction is a positive sign for the market, challenges such as declining single-family housing starts and builder sentiment remain areas of concern. The industry will be closely watching for potential interest rate reductions by the Fed to stimulate further growth in the housing sector.