Housing starts for June came in at 1,173,000, 11.1% below the consensus of 1,320,000 and 4.2% below last year’s 1,225,000. Permits did not fare much better, coming in at 1,273,000 which is 4.2% below the consensus of 1,329,000 and 3% below last year’s 1,312,000. Single family starts were 858,000, fairly proportionate to the ratio of single family starts we have seen in recent months, as a percentage of total starts.
The results for June are both surprising and disappointing. While it is not uncommon to see a bit of a drop-off in starts and permits at the end of summer before rebounding again in the fall, the June results are a bit perplexing. Given the recent 4 to 5 month stretch of relative strength in starts and permits, and without an anomaly such as extreme atypical weather to blame, the results are clearly counter to recent trends. With yesterday’s builder sentiment still at lofty levels, despite being flat month to month, the sharp drop in starts and permits may indicate that labor constraints may be impacting builders’ ability to rapidly complete homes more than we thought. As mentioned last month, challenges with labor costs and material costs, particularly in a rising rate environment, are typically more than enough to slow starts and permits. However, the severe shortage of homes for sale has buoyed the builders through strong demand for new homes.
Based on today’s numbers, the strong builder sentiment may be more a reflection of builders’ confidence in their ability to quickly sell what they build, but not necessarily confidence in their ability to build at a velocity and price point that the market may dictate.