Housing starts rose 14.6% to an annual rate of 629,000 in June, the first increase since March. Construction of single-family units moved up 9.4% to annual rate of 453,000 in June, the highest level since October 2010. These improvements in home building activity are a positive development but the level of total housing starts is about 72% below the peak registered in January 2006 (2.273 million units). However, housing starts in the second quarter fell at an annual rate of 4.5% to 576,000 vs. a 582,000 mark in the first quarter. On a regional basis, the Northeast (+35.1%) posted the largest gain of housing starts, while the Midwest (+25.3%), South (+10.6%) and West (+5.4%) posted relatively smaller increases. The downside of an increase in supply of new homes is a further reduction of home prices if firms fail to increase payrolls.
The annualized change in housing starts advanced one quarter has a strong positive correlation with residential investment expenditures (see Chart 2). Based on this relationship, the 36% jump in housing building activity in the first quarter should translate into an increase in residential investment expenditures in the second quarter, while the 4.5% decline recorded in the second quarter would imply a drop in the residential investment expenditure component in the third quarter. Residential investment expenditures fell at an annual rate of 2.0% in the first quarter.