New residential construction in the U.S. showed a substantial increase in the month of June, according to a report released by the Commerce Department on Tuesday.

The Commerce Department said housing starts spiked by 6.3 percent to an annual rate of 1.643 million in June after jumping by 2.1 percent to a revised rate of 1.546 million in May.

Economists had expected housing starts to increase by 1.1 percent to a rate of 1.590 million from the 1.572 million originally reported for the previous month.

The stronger than expected surge in new residential construction reflected significant growth in both single-family and multi-family starts.

Single-family starts shot up by 6.3 percent to a rate of 1.160 million, while multi-family starts jumped by 6.2 percent to a rate of 483,000.

The report also showed housing starts in the West and South soared by 12.6 percent and 9.7 percent, respectively, although housing starts in the Northeast and Midwest plunged by 9.0 percent and 7.5 percent, respectively.

Meanwhile, the Commerce Department said building permits tumbled by 5.1 percent to an annual rate of 1.598 million in June after slumping by 2.9 percent to a revised rate of 1.683 million in May.

Building permits, an indicator of future housing demand, had been expected to climb by 1.1 percent to a rate of 1.700 million from the 1.681 million originally reported for the previous month.

With the unexpected decrease, building permits fell to their lowest level since hitting an annual rate of 1.595 million last October.

Single-family permits plunged by 6.3 percent to a rate of 1.063 million, while multi-family permits slid by 2.6 percent to a rate of 535,000.

Building permits fell in all four regions of the country, with permits in the Northeast and West tumbling by 8.3 percent and 7.4 percent, respectively.

“We expect housing starts to mostly move sideways over the balance of 2021,” said Nancy Vanden Houten, Lead Economist at Oxford Economics. “Strong demand, a need for inventory and generally upbeat homebuilder optimism will keep a floor under starts.”

“However, builders continue to face supply constraints that may hamper or at least postpone construction,” she added. “The backlog of housing starts declined overall, but edged up for single-family starts to the highest level since October 2006.”

On Monday, the National Association of Home Builders released a separate report showing an unexpected dip in U.S. homebuilder confidence in the month of July.

The report showed the NAHB/Wells Fargo Housing Market Index edged down to 80 in July from 81 in June. The modest decrease surprised economists, who had expected the index to inch up to 82.

With the unexpected drop, the housing market index slipped to its lowest level since hitting 78 in August of 2020.

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