Fed Rate-Cut Optimism Boosts Housing Starts/Permits in June

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In June, there was a noticeable uptick in both housing starts and building permits, offering a glimmer of hope for the housing market. This increase of 3.0% in housing starts and 3.4% in building permits on a month-over-month basis followed a period of disappointing figures in May, which have now been adjusted to show smaller declines. This positive shift brings the seasonally adjusted annual rate (SAAR) totals for both starts and permits just above their lows during the COVID lockdown, according to Bloomberg data. The increase, modest yet significant, signals a potential turnaround in the market dynamics, attributed to growing optimism about Federal Reserve rate cuts.

The details, however, reveal an uneven recovery across the housing sector. While multi-family unit permits and starts experienced significant growth, single-family home permits and starts continued to decline. Specifically, single-family starts decreased by 2.2% to a SAAR of 980,000, the lowest since October 2023. On the other hand, multi-family starts surged by 22% to a SAAR of 360,000, indicating the highest level of activity since February 2024. This divergence underscores a shifting landscape in real estate, where demand for rental properties appears to be growing, possibly fuelled by inflation and the challenges in the single-family home market, including four consecutive months of declining construction plans due to high inventories.

Amidst these mixed signals, completions of housing projects reached a significant milestone, achieving their highest level since January 2007. This rise in completions, juxtaposed with the languishing new starts near COVID lockdown lows, raises questions about the market’s ability to absorb new inventory. The mantra “If we build them, they will buy?” thus seems increasingly challenged in the current context. As the market navigates these complexities, the outlook for the housing sector remains cautiously optimistic, largely buoyed by the hope of further Fed rate cuts that could stimulate borrowing and investing. Nonetheless, the uneven nature of the recovery underscores the need for a nuanced understanding of the future trajectory of the housing market.