Implications: Housing starts spiked higher in June, rising 14.6%, well above consensus expectations. The gains were about evenly split between the volatile multi-family sector, which has been trending higher since late 2009, and single-family homes. This gain supports our view from a couple of months ago that the dip in home building in the Spring was due to the unusually wicked tornado season. The details of today's report were strong as well. Building permits, a sign of future activity, beat consensus expectations and the total number of homes under construction increased for the first time since 2006. Starts are not going to increase every month, but home building is set to trend higher over the next several years. Population growth and "scrappage" rates suggest that once the excess inventory of homes is cleared that the underlying trend for building activity is about 1.6 million starts per year. That's about 2.5 times current levels. In other words, home building must increase substantially just to get back to "normal" levels, not even to go back to the overbuilding of the prior decade. For at least the near term, growth in multi-family construction should outpace the growth in single-family units. There is an ongoing shift toward renting rather than owning. Part of that shift is due to tight credit conditions which are unlikely to disappear very soon.
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