Despite rising confidence among builders, home construction slowed down in June as Housing Starts, which measure the start of construction on homes, fell 8% from May. However, this number can be volatile from month to month and the pullback in June followed a big uptick in May’s construction activity.

Building Permits, which are indicative of future supply, also declined 3.7% from May to June. On a positive note, permits for single-family homes rose 2.2% from May to the highest level since June of last year.  

What’s the bottom line? The housing sector remains undersupplied and not enough inventory is heading to the market. Housing Completions fell by 3.3% last month, with single-family completions down by 2.8%. When we look at new supply that will be coming to market, which is currently around 1.4 million homes annualized, and subtract roughly 100,000 homes that need to be replaced every year due to aging, we’re well below demand as measured by household formations that are trending at 1.5 million.

As noted above, this ongoing disparity between supply and demand is a key reason why home values continue to rise and why now provides great opportunities to take advantage of appreciation gains.