EconoFACTS

August 16, 2022 | 08:55

No Heatwave in Housing

Economist

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Rising prices, rising borrowing costs, rising prices, recession fears... did I mention rising prices? These are all factors that are rocking the foundations of the U.S. housing market these days. Housing starts plunged 9.6% in July to a far-lower-than-expected 1.446 mln units annualized, the lowest since last February. There were net upward revisions to the prior two months, which are now averaging 1.581 mln units (was 1.575) but that is neither here nor there. There were steep declines in both singles (10.1%) and multis (-8.6%). Aside from odd 65.5% surge in the Northeast, the rest of the country settled lower. (Meantime, Canadian housing starts unexpectedly rose 1.1% to 275,329 units annualized in July from 272,391 in June. Go figure.)

With that glaring dive in mind, U.S. building permits provided some better news. Permits slipped for the third time in the past four months, but the 1.3% slide was not as bad as expected (all singles as multis rose). And at 1.674 mln units, is still larger than the number of starts, which is that trusty sign that there will be more ground broken in coming months. After all, one needs permission to begin construction before they actually do so.

Should anyone be shocked at these results? Not fully. Just look at how shaky homebuilder confidence has become. The NAHB index has declined for eight consecutive months, a streak not seen since 2007. And at an 8-year low of 49 (outside of 2020) in August, that indicates that more builders view sales conditions as poor than good. Remember the days when supply constraints was centered on land availability? Then it became the rising cost of materials, then worker shortages.

Now, demand has cooled and will continue to do so until rates cool off. And that might not be some time.

Table 1 - United States — Housing Starts, Building Permits

(millions of units : a.r.)

Source: BMO Economics, Haver Analytics