After three straight months of weaker-than-expected reports, Wednesday’s release of Building Materials and Housing Starts bucked the recent trend coming in better than expected, joining other reports this week that have managed to exceed expectations. As shown above the table below, May’s reports were also revised higher. While the better-than-expected results were welcome, the overall levels of starts and permits remain relatively weak.

On a m/m basis, housing starts increased by 3% month/month, but all the increase was a function of multi-family units, which increased by 19.6%. Single-family units were down 2.2% and fell below the million annualized run rate. Building Permits showed a similar picture with single-family units falling 2.3% while multi-family units jumped 15.6%.

The chart below shows the 12-month average of Building Permits and Housing Starts since 2010, and both measures have now nearly erased all their post-Covid surge. While not quite at new multi-year lows, barring another big jump next month, both series will very likely be at new lows following next month’s report.

While housing starts are trending lower, housing stocks have reversed a steady downtrend in the last few trading sessions. After peaking in late March, the iShares Home Construction ETF (ITB) corrected 15% heading into the July 4th holiday, but since then the ETF has surged as investors rotated out of the mega-caps and into everything else. By yesterday’s close, ITB had erased nearly all of its Q2 decline. Stocks typically lead fundamentals, so by that logic, do homebuilder stocks know something the rest of us don’t?

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