Residential Construction Activity Picks Up Slightly

Residential construction activity improved in June compared with the prior month, but overall, activity remains relatively stagnant. According to data from real estate marketing platform Realtor.com, residential building permits rose by just 0.2% month-over-month, and new-home starts grew by 4.6% month-over-month. Permits and starts also are 4.4% and 0.5% lower than they were last June, respectively. Meanwhile, new-home completions declined by 14.7% from May to June and by 24.1% from the same period last year.

For the two leading indicators of housing supply, permits and starts, the slowdown is primarily concentrated in the single family space. While single family permits were down 8.4% year over year and starts were down 10.0% year over year, multifamily permits were up 2.1% and starts were up 25.8% from last year. This is a rebalancing of the trend we have seen in recent years where builders have been deprioritizing large apartment complexes. Now, with single family home sales stalling and existing home inventory continuing to pick up, builders are reluctant to overcrowd the single family home market and are instead turning to larger projects with higher margins to insulate themselves from the increased building costs due to tariffs. Though completions fell sharply for both single and multifamily projects (down 15.5% and 39.8% year over year respectively), builders are more reluctant to complete multifamily homes despite the fact that they are more willing to start them. This could be due to expectations around rent levels. For 23 consecutive months, rents have fallen nationally on a year over year basis. Vacancy rates are falling, though, so this cannot be sustained and builders may just be waiting to release their new inventory into a more favorable market.