The July Dive in Housing Starts

By SBE Council at 16 August, 2022, 12:09 pm

by Raymond J. Keating –

The Census Bureau has reported that housing starts took a dive in July, with permits not faring well either.

In fact, after having a nice run during the pandemic economy, housing starts have now fallen back to below their pre-pandemic level:

● Housing starts (at a seasonally adjusted annual rate) for July were down by 9.6 percent versus June, and off by 8.1 percent compared to year earlier.

● Single-family housing starts were down by 10.1 percent in July versus June, and off by 18.5 percent compared to July 2021.

Source: Federal Reserve Bank of St. Louis, FRED

Source: Federal Reserve Bank of St. Louis, FRED

As for housing permits, a gauge of future starts, these were down by 1.3 percent in July versus the previous months, and up by 1.1 percent compared to a year earlier. Again, there were larger declines in single-unit permits – down by 4.3 percent in July versus June, and down by 11.7 percent compared to July 2021. Total and single-unit permits remained, however, above pre-pandemic levels.

It’s clear that inflation, higher interest rates, ongoing supply chain issues, and recession have combined to take a toll on residential housing. The National Association of Home Builders reported on August 15:

“In another sign that a declining housing market has failed to bottom out, builder confidence in the market for newly built single-family homes fell six points in August to 49, marking the first time since May 2020 that the index fell below the key break-even measure of 50, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI)…”

A Housing “Recession” for Small Business 

Residential housing investment, of course, is an important measure in GDP, so obviously this July data serves as a negative factor at the start of the third quarter. For good measure, residential housing is nearly all about small business, with 99.7 percent of employer firms in the residential building construction sector having fewer than 100 employees.

Finally, consider that NAHB Chief Economist Robert Dietz now speaks of “a housing recession.”

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest book is The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist.