The Commerce Department released a report on Tuesday showing an unexpected spike in new residential construction in the U.S. in the month of August, although the report also showed a steeper than expected slump in building permits.
The report showed housing starts soared by 12.2 percent to an annual rate of 1.575 million in August after plunging by 10.9 percent to a revised rate of 1.404 million in July.
The sharp increase surprised economists, who had expected housing starts to edge down by 0.1 percent to an annual rate of 1.445 million from 1.446 million originally reported for the previous month.
Housing starts rebounded after hitting their lowest level since dropping to an annual rate of 1.376 million in August 2020.
The unexpected bounceback by housing starts came as multi-family starts skyrocketed by 28.0 percent to an annual rate of 640,000, while single-family starts jumped by 3.4 percent to an annual rate of 935,000.
Meanwhile, the Commerce Department said building permits plunged by 10.0 percent to an annual rate of 1.517 million in August after slipping by 0.7 percent to a revised rate of 1.685 million in July.
Economists had expected building permits, an indicator of future housing demand, to tumble by 4.5 percent to an annual rate of 1.610 million from the 1.674 million originally reported for the previous month.
With the much bigger than expected decrease, building permits slumped to their lowest annual rate since hitting 1.338 million in June 2020.
Multi-family permits plummeted by 17.9 percent to an annual rate of 618,000, while single-family permits dove by 3.5 percent to an annual rate of 899,000.
“We look for housing starts to soften from the August pace,” said Nancy Vanden Houten, U.S. Lead Economist at Oxford Economics. “While a shortage of homes continues to persist, more cautious homebuilders are expected to slow the pace of construction in response to higher interest rates and a slowing economy.”
On Monday, the National Association of Home Builders released a separate report showing U.S. homebuilder confidence declined for the ninth consecutive month in September.
The report showed the NAHB/Wells Fargo Housing Market Index slid to 46 in September from 49 in August. Economists had expected the index to edge down to 48.
The bigger than expected decrease dragged the housing market index down to its lowest level since hitting 45 in May 2014.
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