Home-building showing good signs in July. But we are not getting more sales

An interesting and positive sign in the economy came from a report last week that said even with mortgage rates being at their highest levels since the late 2000s, home-building activity picked up in July.

Housing Starts
Privately‐owned housing starts in July were at a seasonally adjusted annual rate of 1,452,000. This is 3.9 percent (±16.0 percent)* above the revised June estimate of 1,398,000 and is 5.9 percent (±16.1 percent)* above the July 2022 rate of 1,371,000. Single‐family housing starts in July were at a rate of 983,000; this is 6.7 percent (±13.0 percent)* above the revised June figure of 921,000. The July rate for units in buildings with five units or more was 460,000.

Housing Completions
Privately‐owned housing completions in July were at a seasonally adjusted annual rate of 1,321,000. This is 11.8 percent (±7.8 percent) below the revised June estimate of 1,498,000 and is 5.4 percent (±11.1 percent)* below the July 2022 rate of 1,396,000. Single‐family housing completions in July were at a rate of 1,018,000; this is 1.3 percent (±11.6 percent)* above the revised June rate of 1,005,000. The July rate for units in buildings with five units or more was 297,000.

That’s the second-highest amount of housing starts in the last 10 months. I also note the increase in single-family starts and completions, which would be a nice reversal from what we’d seen for the last couple of years, where single-family homes have been hard to find (driving up the prices of the few that become available), and high-density housing has been the more common form of homes being built.

Last month also had the 3rd-highest rate of permits since last October, indicating that the declines from the post-COVID boom from mid-2020 to early 2022 are bottoming out. The shift to single-family homes and away from multi-family is also apparent on the permit side of the housing market.

If the good numbers for home-building holds in the next 2 months, we may well see the "residential fixed investment" increase the country's GDP in the 3rd quarter. That's something that hasn't happened since the first quarter of 2021, and would be a notable turnaround from the last half of 2022, when the decline in home-building (shown in light blue in the chart) was taking off more than 1% of our quarterly GDP totals.

But while home-building seems to have bottomed out and started to cover, home sales keep falling. The most recent update from the National Association of Realtors said June 2023 had double-digit drops in total home sales from June 2022. And June 2022 was down double digits from June 2021.

Wisconsin also reflects this decline, as the Wisconsin Realtors Association recently updated its sales data for July, and you can see that 2023's sales activity is significantly below each of the 5 previous years.

This is likely where you're seeing the effect of higher interest rates, more than on the home-building side. Because higher interest rates make it a lot harder to want to buy and move into a new home...or in wanting to leave a home when someone is locked into a 2.5% or 3% home loan. And that seems to be a situation that won't change very much in the near future, given how the Fed seems locked into "higher for longer" as its interest rate strategy.

In Wisconsin, we haven't seen the lack of sales stop prices from rising, as the WRA says the median sales price of a home was up 7.5% year-over-year in July. But we have seen declines in several other parts of the country, and after big-time increases in prices for the last few years, it is clear that the home-buying market has cooled. The question is whether it becomes a moderation that might allow more people to have a chance to buy a house, or if it speeds into a crash that causes other economic disruptions.