EconoFACTS

June 20, 2024 | 09:04

U.S. Housing Starts: Not Just Under the Weather

Economist

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

Sal Guatieri

Senior Economist and Director
Economics

Sal Guatieri is a Senior Economist and Director at BMO Capital Markets, with over two decades experience as a ma... (Read more)

The weakest U.S. housing starts since the pandemic-led shutdowns are fairly convincing evidence of restrictive monetary policy. Starts unexpectedly plunged 5.5% in May, more than retracing a downwardly-revised 4.1% advance in April, and now down a whopping 19% from a year ago. The level of 1.277 million (annualized) is the lowest since June 2020. The decline was spread across single-family and multi-family units and spanned three of four major regions. While unusually wet weather may explain a portion of the weakness, the prior two months were also depressed. Moreover, building permits, which are much less sensitive to shifts in the weather, also fell sharply, by 3.8% after big declines in the prior two months. The level of 1.386 million is also the lowest since the shutdowns. The data flag a sizeable retreat in Q2 residential construction that will weigh on GDP growth.

Don't expect starts to rebound in June, according to the latest home builders' activity index (NAHB), which fell to a six-month low of 43 this month (below the neutral 50 mark). While listings remain lean in the resale market, demand has been depressed by high mortgage rates that are keeping affordability at the worst levels since the mid-1980s. Moreover, sales of new single-family homes have trended lower, resulting in a 9-month supply, well above the typical 6 months.

Bottom Line: While a growing population and workforce are providing some support, U.S. home builders won't become busier until borrowing costs fall. Thankfully, this is one more report pushing the needle toward a Fed rate cut later this year.

Table 1 - United States — Housing Starts, Building Permits

(millions of units : a.r.)

Source: BMO Economics, Haver Analytics