Evening Brief – 06.20.23

Following two months of declining US housing starts and building permits, which was predictable given 30-year mortgage rates fluctuating around 7%, the May data was a welcome surprise. After a modest revision to the April numbers, both housing starts and permits skyrocketed.

The 291k increase in housing starts was the largest monthly increase in actual units on record, as well as the largest percentage increase since October 2016, reflecting improvements in three of four regions.

There was a 156k, or 18.5%, increase in single-family units to 997k, the highest since June 2022. Multi-family starts impressed even more, rising to 624k from 487k, or 28.1%.

Permits increased 5.2% year-on-year to 1.49 million units. Permits for single-family homes grew 4.8% to 897k, the highest level since July 2022, while multi-family permits increased 7.8% to 542k following a two-year low in April.

The robust housing data supports Fed Chair Jay Powell’s remarks last week that the housing market is stabilizing. Homebuilders, who are responding to low inventory, and have been one of the strongest sectors in S&P 500 over the past several weeks, have become more optimistic.

Economists will likely implement the latest figures into their estimates of home construction’s impact on second-quarter GDP. Prior to the release, GDPNow from the Atlanta Fed predicted residential investment would reduce growth by around 0.1%, which would be the lowest prediction since 2021; however, GDP estimates are now predicted to significantly increase.