US July Housing Starts Rose a Smaller than Expected 5.9%

• Housing starts in July 2013 rose a smaller than expected 5.9% to an annualized 896,000 from an upwardly revised level in June of 846,000.

• The July increase resulted solely from a 26.0% increase in the multiples component to 305,000 as singles fell 2.2% to 591,000.

• July building permits rose a smaller 2.7% although to a stronger level of 943,000.

Housing starts in July rose a smaller than expected 5.9% to an annualized 896,000. Expectations had been for a stronger 7.7% increase. The July increase was limited by the June level being revised upward to 846,000 from an initially estimated 836,000.

The July increase resulted solely from a 26.0% increase in the multiples component to 305,000 as singles fell 2.2% to 591,000. The biggest percentage increase occurred in the Northeast where starts jumped 40.2% to 115,000 followed by gains in the Midwest of 25.4% to 158,000 and the West of 7.2% to 22,000. The South was the only region to show a decline by dropping 7.0% to 401,000.

Optimism about an even stronger increase was prompted by June permits remaining high at 918,000. This optimism about higher new housing construction is likely to persist with indications in today’s report that permits rose 2.7% to an even stronger annualized level of 943,000. Optimism about further gains in residential investment going forward is supported by the National Association of Home Builders’ (NAHB) confidence index continuing to trend higher rising to 59 in August from 56 in July and a recent low in April of 41.

The increase in July housing starts helped to offset the unexpectedly large 7.9% decline in June. This rebound along with further increases during the next two months bode well for residential investment to continue to grow in the third quarter of 2013. Our forecast, however, assumes some moderation in the pace to under 5% from the 13% recorded in the second quarter. Thus, although new residential construction will support growth, it is other areas of the economy, such as consumer spending, that are expected to contribute to overall GDP growth returning to an above-potential growth rate in the third quarter. A strengthening pace of activity is expected to be one factor that will prompt the Fed to start slowing the pace of asset purchases. Our forecast assumes that the so called ‘tapering’ will begin in October with the asset purchases being eliminated by the middle of next year; however, any hike to fed funds is not expected until 2015.

 

RBC

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