Home construction picked up in July as Housing Starts, which measure the start of construction on homes, were up 3.9% from June. Starts for single-family homes also saw improvement, as they were 6.7% higher from June to July. Building Permits, which are indicative of future supply, were relatively flat last month. Permits for single-family homes rose 0.6% from June to the highest level in a year.  

What’s the bottom line? The last three months have brought the highest number of Housing Starts so far this year. While this is a step in the right direction, more inventory is needed to meet demand.

When we look at new supply that will be coming to market (around 1.45 million homes annualized per the latest Housing Starts total) 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 2.07 million. Even looking at future supply (Building Permits at 1.44 million annualized), we’re still lower than where we need to be.

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.