There are several important reports on the U.S. housing market worth mentioning this morning. First, privately-owned housing starts in July grew at a seasonally adjusted annual rate of 1.496 million units, according to new Census Bureau data. That was a 22.6 percent jump from June and therefore the biggest monthly increase since 2016 and significantly better than analysts anticipated. As we predicted in April residential real estate has indeed been the main driver of the V-shaped rebound in the U.S. housing market, but the July data suggests that the recovery is now broadening as both single-family and multi-family (rental) starts rose markedly last month. By some measures the gains were even stronger in the South and the West in July, an encouraging sign that the “second wave” of the coronavirus did not materially impact the real estate markets in the recent COVID “hot spot” states. Everything could of course change if the outbreak worsens but for now the incoming statistics continue to support the argument that the uptick in infections that started in June has already peaked.
Looking ahead, building permits, a gauge of future construction activity, also improved in July, and again there was broad strength seen across most regions of the country. Homebuilder optimism has unsurprisingly strengthened in this environment, and according to the NAHB confidence last month even managed to eclipse the previous record high. Surveyed homebuilders expressed more favorable opinions of current sales conditions and prospective buyer traffic, and NAHB’s Robert Dietz added that “single-family construction is benefiting from low interest rates and a noticeable suburban shift in housing demand to suburbs, exurbs, and rural markets as renters and buyers seek out more affordable, lower density markets.” This purported “big city exodus” has so far been concentrated in the most population-dense metros, such as Manhattan, where rental vacancies have surged and prices have collapsed even during the past few months when its COVID-related statistics have been trending in a more favorable direction than many other areas of the country. Whether or not this spreads to other big cities remains unknown, but it easy to imagine a scenario where the current large metropolitan areas continue to attract new residents in the future, albeit at a slower rate as suburban and rural areas experience more rapid growth and in turn transform into the new boom towns, or really “Zoom towns” as the work from home and remote learning trends gain momentum thanks to more widespread broadband internet access.
Sources: Econoday, U.S. DoC, BofAML, NAHB, Miller Samuel, FRBSL