US housing starts in June were reported at 1.321 million, exceeding the estimated 1.300 million. The previous month’s figures were revised to 1.263 million from 1.256 million. Building permits also surpassed expectations, reaching 1.397 million compared to the predicted 1.390 million.
For building permits, the total reached 1.397 million SAAR, marking a 0.2% increase month-over-month but a 4.4% decrease year-over-year. Single-family permits stood at 866,000, showing a 3.7% drop from the previous month, while permits for multi-family units (5+ units) were at 478,000.
Housing Starts And Permits
Housing starts totalled 1.321 million SAAR, reflecting a 4.6% rise from the previous month but a 0.5% decrease from the year before. Single-family starts decreased by 4.6% to 883,000, with multi-family starts (5+ units) at 414,000.
Total housing completions were recorded at 1.314 million SAAR, which is down 14.7% month-over-month and 24.1% year-over-year. The single-family completions registered a 12.5% month-over-month decline to 908,000, with multi-family completions (5+ units) at 383,000.
We see the headline housing starts and permit numbers as misleadingly positive. The underlying weakness in single-family units, which are down month-over-month, points to a fragile market. This divergence between multi-family strength and single-family weakness suggests a cautious approach is necessary.
Housing Market Challenges
The core issue remains affordability, which is being crushed by elevated mortgage rates. With the average 30-year fixed rate hovering just under 7% as of mid-July according to Freddie Mac, potential homebuyers are being sidelined. This is reflected in the National Association of Home Builders/Wells Fargo Housing Market Index, which dropped two points to 43 in July, marking the third consecutive monthly decline and signaling builder pessimism.
The most concerning metric is the 24.1% year-over-year plunge in housing completions. This signals that builders are either unable or unwilling to finish projects, potentially to avoid adding inventory to a softening market. This slowdown could negatively impact companies in the building materials sector, especially those focused on finishing products like appliances and fixtures.
Historically, a sustained slump in single-family construction and completions has been a strong leading indicator of a broader economic recession. The current data fits this pattern, contrasting sharply with robust employment figures and creating a confusing picture. This disconnect between a weak housing market and a strong labor market is unlikely to last.
Given this evidence, we believe buying protective put options on homebuilder ETFs, such as the SPDR S&P Homebuilders ETF (XHB), is a prudent strategy. The ETF saw a significant rally into early July, and these housing figures suggest that momentum may not be sustainable. This trade allows us to position for a potential downturn in the sector over the coming weeks with defined risk.
