Housing Starts Show Mixed Signals: What Investors Must Know Now
June’s housing starts data delivers a nuanced story that savvy investors and advisors can’t afford to overlook. While overall housing starts ticked up 4.6% month-over-month to 1.321 million units, this rebound barely offsets May’s dip and masks a deeper divergence within the sector. Single-family home starts—the traditional bellwether for housing health—actually fell 4.6%, hitting their lowest level since early spring. Multifamily construction, on the other hand, powered the modest gains with an annualized rate of 414,000 units, though even this segment is trending down from last year’s peak.
Why does this matter? The slowdown in single-family starts signals a cooling in demand for materials like lumber, steel, and construction services, sectors that had been riding a wave of pandemic-fueled homebuilding. According to the National Association of Home Builders (NAHB), single-family homes typically drive about 70% of residential construction spending, so a sustained dip here could ripple through the broader economy.
But the real red flag is in housing completions, which plunged 14.7% from May to a seasonally adjusted annual rate of 1.314 million units—a staggering 24.1% drop compared to last year. Single-family completions slid 12.5%, while multifamily completions also declined. This sharp fall suggests ongoing bottlenecks—likely a mix of labor shortages and persistent supply chain disruptions—that are throttling the pipeline of new homes hitting the market.
For investors, this means homebuilders might face delayed revenue recognition and margin pressures. Inventory shortages could persist in key regional markets, keeping prices elevated but frustrating buyers and potentially slowing sales velocity. This dynamic creates a challenging environment for construction-linked stocks, which may continue to underperform unless mortgage rates ease or credit conditions improve.
Here’s the kicker: mortgage rates have hovered near multi-year highs, with the 30-year fixed-rate mortgage recently averaging around 7%. This rate environment is a significant headwind for single-family home demand, as affordability constraints tighten. Unless rates retreat, expect single-family starts and completions to remain subdued.
What should investors and advisors do differently now?
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Shift Focus to Multifamily and Rental Markets: With single-family construction slowing, multifamily housing—driven by rental demand—offers a relatively more stable opportunity. REITs and construction firms focused on apartments may weather the storm better.
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Monitor Regional Variations Closely: Some regions, especially Sun Belt states, still face acute housing shortages. Targeting investments or advising clients based on local market dynamics can uncover pockets of resilience.
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Watch for Policy Changes: Keep an eye on potential federal or state interventions aimed at easing supply chain issues or incentivizing homebuilding. For instance, recent proposals to relax zoning laws or increase infrastructure spending could alter the landscape.
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Prepare for Volatility in Construction Materials: Lumber and steel prices are likely to see continued fluctuations. Investors in commodity markets or related equities should factor in the housing sector’s uneven momentum.
Looking ahead, the housing sector’s trajectory will hinge on mortgage rate trends and credit availability. If rates begin to moderate in late 2024, we could see a rebound in single-family starts. Conversely, persistent high rates may push builders to pivot further toward multifamily projects or renovation markets.
A recent report from the Urban Institute underscores this uncertainty, noting that housing affordability remains a critical barrier, with nearly 40% of renters and homeowners cost-burdened. This structural challenge suggests that the current slowdown isn’t just cyclical but tied to deeper economic shifts.
In summary, the mixed housing starts data signals caution. Investors should adopt a nuanced approach—balancing exposure between multifamily and single-family sectors, staying alert to regional trends, and preparing for continued supply chain and labor challenges. The residential construction sector is at a pivotal juncture, and those who read the signs early will position themselves for the next wave of opportunity.
For the latest updates on housing and economic indicators, stay tuned to Extreme Investor Network—where insight meets action.
Source: U.S. Housing Starts Tick Higher in June, But Permits and Completions Signal Construction Slowdown