Housing Starts Retreat in June: Positives Looking Ahead?

By SBE Council at 20 July, 2023, 6:16 pm

by Raymond J. Keating – 

After a big move up in May, housing starts dropped by 8.0 percent in June (on a seasonally adjusted annualized rate), according to the latest report from the U.S. Census Bureau.

The May increase, as seen in the following chart, registered 15.7 percent, after declines in eight of the previous ten months.

Meanwhile, housing permits, which serve as an estimate of future starts, declined by 3.7 percent in June, after a gain of 5.6 percent in May. As noted in the following chart, housing permits have experienced gains in only five months since the start of 2022.

The trend obviously hasn’t been positive on the housing front. And of course, based on the latest Census Bureau data (2020), the residential building construction industry is almost completely about small business, with 92.3 percent of employer firms having fewer than 10 employees, and 97.3 percent fewer than 20 workers.

However, the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) showed “builder confidence in the market for newly built single-family homes in June rose five points to 55,” and that was “the first time that sentiment levels have surpassed the midpoint of 50” – that is, moved into positive territory – since July 2022.

NAHB Chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala., said, “Builders are feeling cautiously optimistic about market conditions given low levels of existing home inventory and ongoing gradual improvements for supply chains. However, access for builder and developer loans has become more difficult to obtain over the last year, which will ultimately result in lower lot supplies as the industry tries to expand off cycle lows.”

Many questions lurk regarding the economy – including the Fed’s actions regarding interest rates – but let’s hope that the move up in builder confidence is justified.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.