U.S. housing sector fundamentals remain favorable despite the recent rise in interest rates and the sharp drop in housing starts in June, says Citigroup economist Peter D’Antonio.

Housing starts fell 9.9 percent to a ten-month low of 836,000 units in June.

But the decline was almost all in the volatile multi-family sector, D’Antonio notes. Single-family starts remained in a range just below 600,000, while multi-family fell 26 percent to 245,000.

Multi-family starts have been an important growth sector in housing in the past year, but month-to-month changes in multi-family starts – noted for their volatility – are meaningless. Multi-family housing starts rose 21 percent in March, fell 32 percent in April, rose 28 percent in May, then fell 26 percent in June.

Even with the rate increase, houses remain extremely affordable.

The typical household still can afford about 70 percent more than the median house. The (NAHB) housing market index for July reported another big rise in buyer traffic and sales, indicating builder optimism and continued solid demand for new homes.

 

Fed Chairman Ben Bernanke, in what was likely his last monetary policy testimony to Congress this week, largely agreed: