U.S. housing starts fall in July, tight labor market and rising wages likely to support housing market activity

U.S. housing starts dropped in July by 4 percent to 1.191 million units from a downwardly revised 1.241 million units in the prior month. The market expected a slight rise of 0.2 percent. The revision reflected lower multi-family starts than previously reported, while single-family starts were upwardly revised.

July’s drop was also concentrated in the multi-family segment, which dropped 16.2 percent to 315k, after a similar 16.4 percent fall in the prior month. The larger single-family segment recorded a modest rise of 1.3 percent to 876k.

Permits rose 8.4 percent in July to 1.336 million, reversing a 5.2 percent fall in June. Multi-family permits rose sharply by 21.8 percent, while single-family permits rose a bit by 1.8 percent in July, rising for the third consecutive month.

Region wise, starts generally turned negative, with just the West posting a marginal rise of 1.3 percent. The Northeast, Midwest and South were down by 13.8 percent, 6.2 percent and 4.3 percent respectively.

New construction of residential houses continue to face headwinds in the U.S. The June data saw the third straight month of falling housing starts. While the fall for the last two months has been restricted to the multi-family segment, growth in the larger single-family segment has stayed subdued, noted TD Economics in a research report.

In spite of lacklustre starts, the rise in permits is positive, implying that builders might be positioning themselves to construct more units in the future.

“Demand fundamentals remain solid and if construction of more entry-level units can be ramped up, then a tight labor market and rising wages should support activity in the U.S. housing market”, added TD Economics.