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US: Housing Starts Increase in August, Recouping Some of Last Month’s Drop

U.S. housing starts rose by 3.9% to 1.615 million (annualized) units in August, after declining by 6.2% in July. This exceeded market expectations for a 1.0% increase. Starts were revised up by 20k in July and 7k in June, reflecting upward revisions to the multifamily segment, as single family starts were revised down in both months.

The increase was a multifamily story, as starts in the single-family segment fell 2.8% (or -31k) to 1.076 million, while starts in the multifamily segment were up 20.6% (or 92k) to 539 thousand.

Permitting activity recorded its second gain in five months, rising 6.0% to 1.728 million. There were permit increases in both market segments, with multifamily permits leading the way. Multifamily permits rose 15.8% to 674k, while the increase in single-family permits to 1.054 million was much more staid at 0.6% (its first increase in five months).

Reversing last month’s pattern, housing starts were up across most regions, with a decline in the West (-21.1%) the only exception. Increases were led by the Northeast (+167.2%), followed by the Midwest (+11.4%) and the South (+1.4%).

Key Implications

The uptick in housing starts is a welcome development in a housing market that has been beleaguered with low inventory, strong demand and rising prices. Further good news is that U.S. home builder sentiment has also come off recent lows, ticking up in September as the recent run-up in some raw material prices has started to abate. The combination bodes well for future home construction activity.

Much of the nascent uptick in starts has been emanating from the multifamily segment, as new construction of the much larger single family segment proceeds in fits and starts. While demand for single family homes remains strong, the lack of available land and some zoning restrictions have prevented builders from meeting it.

All in all, today’s report was a spot of good news for the housing market, as both permits and starts increased. While labor shortages, material costs, and supply-chain disruptions may slow progress, the combination of low borrowing rates and strong demand for more living and work-from-home space, will continue to provide a solid basis of support.