US housing starts surprise to the downside in July

US housing starts fell by more than expected last month, pointing to a normalisation in demand for housing to pre-pandemic levels.

According to the US Department of Commerce, housing starts fell 7.0% month-on-month to reach an annualised pace of approximately 1.53m (consensus: 1.61m).

Housing permits on the other hand surprised to the upside, climbing by 2.6% on the month to reach 1.64m.

However, as Ian Shepherdson at Pantheon Macroeconomics pointed out, the better-than-expected print on permits was accounted for entirely by permits for multi-family homes.

Shepherdson added that homebuilders were likely also still catching up with the unexpected jump in demand from the back half of 2020, when inventory levels plunged.

"Homebuilders are still catching-up. But the signal from the fall in sales is unambiguous; both permits and starts are likely to fall over the next few months," he said.

"Housing demand has reverted to its pre-Covid level, so construction activity needs to drop further."