June Data: Housing Market Still Strong But Some Cooling Apparent

By at 20 July, 2021, 11:08 am

by Raymond J. Keating –

The residential housing business overwhelmingly is about small business. For example, based on the latest data from the U.S. Census Bureau, 97.4 percent of employer firms in the residential construction sector of our economy have fewer than 20 employees, and 99.7 percent fewer than 100.

Therefore, the hot housing sector for the past 14 months – starting in May 2020, not long after the pandemic hit – has been a good news story about small businesses when such stories have been far too rare.

The latest “Monthly New Residential Construction” report from the U.S. Census Bureau continues to show strength, although with some apparent cooling.

Housing starts at a seasonally adjusted annual rate in June grew by 6.3 percent versus May. After a decline in April, housing starts resumed their growth over the past two months. And the June 2021 level of starts stood far above the pandemic trough registered in April 2020, and above the pre-pandemic February 2020 level.

Source: Federal Reserve Bank of St. Louis, FRED

Meanwhile, the evidence for some cooling came with the data on housing permits, which are an indicator of potential future starts. They were down by 5.1 in June compared to May, and have declined for three consecutive months, and were off from the peak hit in January of this year. However, the June 2021 level was still above the pre-pandemic level.

Source: Federal Reserve Bank of St. Louis, FRED

So, while some cooling in housing is apparent, there are questions that will only be answered in due time, i.e., in the coming weeks. Is the cooling seen in permits a trend or only a brief pause? And how much of the recent decline in permits reflects persisting troubles in terms of supply chain and labor shortages?

Given the larger problems brought on by the pandemic for the economy, small businesses and jobs, the robust housing market has been an interesting counterbalance. The surest path to maintaining a strong housing industry obviously is a strong recovery leading into a period of robust expansion.

Especially once we get beyond a level of recovery that would occur no matter the policy climate, the economy will require a very different emphasis than what we have been witnessing recently. Rather than expanding the costs and reach of government – such as via higher taxes, increased regulation, industrial policy schemes, trade protectionism, and more spending – the U.S. economy needs the exact opposite, that is, tax and regulatory relief, free trade, and reining in the scale and scope of government.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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