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JULY 24, 2017 – HOUSING STARTS REBOUND, BUT IS IT ENOUGH TO BOOST GDP?

June housing starts rose by 8.3 percent to 1.22 million units, following an upwardly revised 1.12 million units reported in May.  The numbers exceeded consensus expectations which called for an increase of 6.2 percent.  Levels are up 2.1 percent over a year ago.  Both multifamily (+13.3%) and single-family (+6.3%) starts contributed to the increase.

The bounce in multifamily construction is unlikely to continue as inventory has been built up and demand for these units is starting to ease. The rise in single-family construction is encouraging as overall construction strength depends on growth in this segment.  The importance of this data relates directly to its effect on US GDP; residential investment, which rose by 13 percent in the first quarter, contributed 48 basis points to the Q1 GDP growth of 1.4 percent.

Housing permits also rebounded, up 7.4 percent in June, following a 4.9 percent decline last month.  This signals overall construction will likely grow in the second half of this year.  Having permit growth exceeding the level of new starts implies repressed demand for new construction.

Consumer growth has been driving the economy of late and is expected to continue to do so for the rest of the year.  With the low unemployment data recently reported and expectations for ensuing wage growth, the consumer may deliver the positive results everyone is hoping for in the second half of 2017.

Don’t get caught paying higher interest rates when you can hedge by entering into an interest rate cap now.  Hedging your payments through the use of interest rate caps is the recommended strategy given the current market conditions.