US housing starts to climb higher as supply chases demand

The US residential investment activity is on a solid upward trend, supported by recent increases in household formations and the related drop in the vacancy rate. Household formations are currently running near 1.5mln per year, which means that demand is outstripping supply of new housing. Although the earlier rise in household formations was largely driven by rental demand, more recent data on new and existing home sales also shows rising demand for owner-occupied housing. 

Yet, the supply side appears to be lagging. For example, new home sales were up 19.5% yoy and pending home sales were up 10.5% yoy as of May, while housing starts increased by just 5.1% yoy during the same period. This suggests that the supply side will have to catch up, although the time frame is not obvious. 

"We assume a 3.8% m/m (16.0% yoy) increase in housing starts in June which would bring the level to 1.075mln," says Societe Generale.