The July report on residential construction from the U.S. Census Bureau and Department of Housing and Urban Development shows that permits increased during the month for only the second time since January while housing starts posted a significant decline, falling in three of the four major regions.

Permits for residential construction were at a seasonally adjusted annual rate of 1.635 million units, up 2.6 percent from the 1.594 million rate in June. June's permits were originally reported at 1.598 million units. The rate of permitting was 6.0 percent higher than the 1.542 million unit estimate in July 2020.

The permitting number was slightly higher than expected. Analysts polled by Econoday had a consensus forecast of 1.62 million units and Trading Economics' predictions came in at 1.61 million.

Single family permits dipped by 1.7 percent from June's revised (from 1.063 million) estimate of 1.066 million to 1.048 million. This is still 5.5 percent higher than the permitting rate in June of last year. Permits for construction of units in building of five or more rose 11.1 percent from June and 6.4 percent year-over-year to a rate of 532,000 units.

On a non-adjusted basis there were 139,600 permits issued during the month, 91,900 of them for single-family houses. The comparable numbers in June were 154,500 and 105,100 units.

For the year-to-date (YTD) there have been 1.005 million permits issued compared to 797,900 at the same point in 2020, an increase of 26 percent. Single-family permits total 681,000 compared to 527,000 in the first seven months of last year, a 29.2 percent rise. Multifamily permits increased 19.4 percent to a total of 293,900 units.

Housing starts gave back all their June gains, dropping 7.0 percent in July to an annual rate of 1.534 million from the 1.650 million unit June estimate (revised from 1.643 million). The pace of starts was 2.5 percent higher than a year earlier.

Analysts overshot the mark with housing starts. Econoday's consensus was 1.61 million units and Trading Economics' came in at 1.60 million.

Single family starts fell 4.5 percent to 1.111 million from 1.163 million in June but were 11.7 percent higher than in July. The June number was a revision from the 1.160 million rate originally reported. Multifamily starts dropped 13.6 percent and 16.3 percent from the earlier periods to a rate of 412,000 units.

Starts totaled 141,000 for the month, 104,200 of which were single-family houses. The unadjusted numbers the previous month were 153,700 and 111,600, respectively.

YTD housing starts number 933,600, 21.8 percent above the 766,600 at the same point last year. Single-family starts increased 27.2 percent to a seven month total of 668,900 compared to 525,700 while starts in multiunit buildings are 9.7 percent higher than last year at 257,100.

Lawrence Yun, chief economist for the National Association of Realtors (NAR) took an uncharacteristically dark view of the housing start numbers. He said, "Rents will be soaring in the coming months, especially for apartment units, as homebuilding retreated in July. There was a housing shortage before the pandemic, and the shortage has been exacerbated during the pandemic. Therefore, homebuilding needed to be greatly ramped up as the jobs recovery took hold. Yet in July, housing starts fell by 7 percent - single family construction is down by 4 percent and multifamily construction is down by 13 percent. Other factors holding back construction: supply-chain disruptions in getting the right material on a timely basis, lags in getting approvals for land lot development, and labor shortages. With home prices having risen by record amounts over the past year, homebuying will become an increasing challenge, and a good number of households may simply decide to rent. In addition, the jobs recovery is enticing people out of their parents' homes to seek their own housing. Consequently, rental demand is rising strongly. With an inadequate supply of available homes, rents will be strengthening and adding further pressure to overall consumer price inflation."

Units were completed at an annual rate of 1.391 million, 5.6 percent more than in June and 3.8 percent growth on an annual basis. Single-family units came on line at an annual rate of 954,000, up 3.6 percent from June and 0.4 percent growth from a year earlier. Multifamily completions rose 9.5 percent and 12.1 percent from the earlier periods.

On an unadjusted basis there were 121,500 units completed during the month, up from 116,300 a month earlier. Single-family completions dipped from 80,800 to 79,100. There have been 771,000 total completions thus far in 2021, up 9.6 percent from a year earlier. Single-family completions total 547,700 and multifamily units 219,500, increases of 8.3 percent and 14.0 percent from the same point in 2020.

At the end of July there were an estimated 1.373 million houses under construction, 689,000 of them single family units. There were also 241,000 permits authorized under which construction had not begun, 145,000 of them for single-family houses.

Permits dipped by 0.7 percent from June to July in the Northeast and were down 8.2 percent on an annual basis. Starts fell 49.3 percent from June and were 44.7 percent lower on an annual basis. Completions rose 2.8 percent and 7.7 percent from the earlier numbers.

The Midwest posted an increase of 4.4 in permitting for the month, but the rate is down 9.3 percent from July 2020. Starts declined 6.9 percent from June and 10.5 percent year-over-year but completions grew by 3.5 percent and 17.9 percent.

Permits in the South were down 1.9 percent for the month but 10.0 percent higher year-over-year while housing starts were higher for both periods at 2.1 percent and 5.2 percent. There were 2.8 percent more homes completed in July than the prior month and a 1.1 percent annual increase.

The rate of permitting in the West was 13.3 percent higher than in June and 13.0 percent above the June 2020 rate. Starts dropped 11.3 percent month-over-month but rose 23.9 percent on an annual basis. Completions grew by 13.7 percent and 2.2 percent, respectively.