It is not exactly what I would call exciting, but the residential construction sector continues to chug along at a steady pace. The seasonally adjusted, annualized total for new houses started in June was 1.19 million. This represented an increase of 5 percent over the total for May, but it was a decline of 2 percent when compared with the June total from last year.
For the first half of 2016, the total number of housing starts is up 7 percent from the same period in 2015.
This is preliminary data, so it will be revised a couple of times in the coming months. But barring a large revision, the June data for the total number of U.S. housing starts was close to my expectations. Nevertheless, after weighing all of the factors, I have lowered my forecast a bit for this year. This revision to the forecast does reflect any real change in my overall opinion about the residential construction sector. I would call it more of a slight tweak.
The revised forecast now calls for an increase of 8 percent in the total number of houses started this year when compared with 2015. The 2015 total was a little over 1.11 million, and a gain of 8 percent this year would push the total up to 1.2 million.
As the graph indicates, this is still well-below the pre-crash levels. But it is a strong and stable level that can be sustained indefinitely. New construction activity has increased over the past seven years in a manner that has been reliable, but the industry has not experienced a “boom.” I will argue that this is good for a lot of reasons.
For instance, mortgage rates remain quite low, yet the overall credit quality of those getting mortgages is quite high. Materials and diesel costs are also relatively low and stable as well. And there is a strong level of new construction projects in the pipeline. In other words, the residential construction sector is functioning in a manner that could best be described as healthy. Now that I think about it, strong and stable for an extended period is actually pretty exciting for the processors that supply this sector.
As always, there are some interesting trends that emerge when you look at the breakdowns of the housing data. One is that the pace of growth for multi-unit structures appears to have cooled considerably this year. In 2015, the annual total for multi-family starts increased 12 percent over the previous year. But in June of this year, the total number of multi-family starts plummeted 24 percent when compared with the same month from 2015, and for the year-to-date, total multi-family starts are down 4 percent.
So has market demand for multi-family dwellings been sated, and single-family structures will now return to the traditional position as the predominant driver of growth?