Implications: Great headline, lousy details. Homebuilding surprised to the upside in June and beat even the most optimistic forecast of any Economics team polled by Bloomberg, rising to a 1.427 million annual rate.  However, the 19.0% monthly gain was entirely due to the multi-unit category where activity can move in big swings. That was the case in June as multi-unit construction rebounded 76% after plunging 40% in May. By contrast, single-family starts edged 0.2% lower and continue to spin their wheels, down 3.2% in the past twelve months.  Looking ahead doesn’t make the picture any rosier.  Permits for new builds lagged expectations and declined 3.0% in June to a 1.367 million annual rate, a three-month low.  This includes a 2.4% decline for single-family permits to their lowest level in almost a year.  Homebuilders have clearly faced a challenging environment in recent years.  Affordability remains the key issue, with 30-year mortgage rates reversing a recent decline and climbing back roughly 50 bps to 6.6% since the onset of the war in Iran, roughly double the levels that prevailed through much of 2021.  High home prices, restrictive local building regulations, tighter immigration enforcement making it difficult to find or replace workers, and tariffs are also contributing. Given these headwinds, it is no surprise to see the NAHB index (a measure of homebuilding sentiment) dropping to 34 in July from 36 in June, where a reading below 50 signals that a greater number of builders view conditions as poor versus good (now the 27th consecutive month that has been the case.)  In other housing news this morning, pending home sales, which are contracts on existing homes, declined 5.4% in June, following a 3.5% increase in May, suggesting a slight decline in existing home sales (counted at closing) in June.

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