Implications: The good news is that housing starts rebounded sharply in July after being depressed by unusually wet weather in many states in June. Like blizzards in the winter, heavy rains in the summer sometimes make it tough to break ground for foundations, adding volatility to the starts data. The so-so news is that the rebound in July was all due to multi-family homes, which are always volatile; single-family starts declined 2.2% in July. Nevertheless, the underlying trends for home building are still upward and should remain that way for at least the next couple of years. Single-family starts are up 15.4% from a year ago while multi-family starts are up 33.2%. The total number of homes under construction (started, but not yet finished) is up 30% from a year ago. Based on population growth and "scrappage," housing starts will eventually rise to about 1.5 million units per year (probably by 2015). This is the level of construction that lets the number of homes rise at the same pace as the population. Most of these homes will be owner-occupied but a large share will also be occupied by renters, which explains why multi-family construction has rebounded more sharply than the single-family sector. As we have said before, investors should not get worked up over every zig and zag in the housing data, especially given unusual weather. Sometimes an indicator will surge up above the underlying growth trend or fall sharply with these moves reversed the following months. Expect more of the same in the year ahead, but also expect the underlying trend to remain upward.
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Posted on Friday, August 16, 2013 @ 9:38 AM
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