US housing starts in June hit 1.321 million, surpassing the estimated 1.300 million. Last month’s figures were updated to 1.263 million from 1.256 million. Building permits also exceeded expectations, reaching 1.397 million instead of the predicted 1.390 million. For building permits, the total came to 1.397 million SAAR, which is a 0.2% increase from last month but a 4.4% drop from last year. Single-family permits were at 866,000, down 3.7% from the month before, while multi-family unit permits (5+ units) were at 478,000.

Housing Starts And Permits

Housing starts totaled 1.321 million SAAR, showing a 4.6% increase from last month but a 0.5% decline from last year. Single-family starts fell 4.6% to 883,000, and multi-family starts (5+ units) were at 414,000. Total housing completions reached 1.314 million SAAR, which is a decrease of 14.7% from last month and 24.1% from last year. Single-family completions dropped by 12.5% month-over-month to 908,000, with multi-family completions (5+ units) at 383,000. The headline numbers for housing starts and permits look misleadingly positive. The weakness in single-family units, which are down month-over-month, indicates a fragile market. The strength in multi-family units alongside the weakness in single-family units suggests that caution is necessary.

Housing Market Challenges

The main issue remains affordability, which is being squeezed by high mortgage rates. As of mid-July, the average 30-year fixed mortgage rate was just below 7%, according to Freddie Mac, which is sidelining potential homebuyers. This is evident in the National Association of Home Builders/Wells Fargo Housing Market Index, which fell two points to 43 in July. This marks the third month of decline in a row, reflecting builder pessimism. The most alarming statistic is the 24.1% year-over-year drop in housing completions. This suggests that builders may not be finishing projects, possibly to avoid adding inventory to a struggling market. This slowdown could harm companies in the building materials sector, especially those focused on appliances and fixtures. Historically, a prolonged decline in single-family construction and completions has often indicated an upcoming economic recession. The current data supports this trend, which stands in contrast to strong employment figures and creates a puzzling situation. This disconnect between a weak housing market and a robust labor market is not likely to last. Given these insights, we recommend buying protective put options on homebuilder ETFs, such as the SPDR S&P Homebuilders ETF (XHB). The ETF saw a notable increase in early July, but these housing figures imply that this momentum may not last. This strategy allows us to prepare for a potential downturn in the sector in the coming weeks with defined risk. Create your live VT Markets account and start trading now.

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