The media got all excited this morning as housing starts jumped from last months downwardly revised number as housing is continuing to bounce along rock bottom.
Housing starts jumped 14.6 percent in June, following no change in May (originally up 3.5 percent). Look for this months number to also be downwardly revised next month as well.
June’s annualized pace of 629 thousand units came in higher than the expectations and is up only slightly from a year ago. The boost in June was led by a 30.4 percent surge in the multifamily component, following a 2.2 percent dip in May.
This confirms what we have already been saying about the weakness in the economy. Without jobs, lack of credit availability and quickly eroding faith in housing as an investment vehicle people are now returning to renting.
The thing that most people aren’t paying attention to is the inflationary pressure push that will potentially show up in the Consumer Price Index. During the boom years in housing no inflationary pressure showed in CPI due to the change from housing prices to homeowners equivalent rent. As people flocked into homes – rents declined due to lower demand.
However, now that individuals are being forced out of homes, they are giving up on housing an investment or they just can’t find a job; renting in many cases in the only alternative. Multifamily unit housing is on the rise and with demand picking up so are the rental rates. This rise in rental rates will potentially lead to a rise in the CPI index as Home Owners Equivalent Rent makes up almost 40% of the number.
The single-family component rose 9.4 percent after gaining 0.7 percent the prior month but this is still nothing more than just volatility in the number for seasonal adjustments.
Housing permits rose 2.5 percent, following an 8.2 percent bump in May. However, overall permits stand at an annualized rate of 624 thousand units and are only up 6.7 percent on a year-over-year basis. This is very weak considering that we are two years into an economic recovery.
The next news on supply of homes for sales comes with the existing home sales report that will be posted tomorrow morning and we will report accordingly.