Slowdown in Multi-Unit Builds Drag Housing Start Down 9.9 Percent in June

Andrew Klips |

Housing starts fooled economists in June, dropping against forecasts for advances, according to a report from the Commerce Department Wednesday.  Housing starts have been posting some large swings in recent months, rising to multi-year highs in April and now hitting the lowest level in 10 months in June.

The report showed groundbreaking on new homes fell by 9.9 percent to a seasonally adjusted annual rate of 836,000 from a revised May figure of 928,000 (originally estimated at 914,000), marking the lowest level since last August.  Economists were expecting the rate to rise to 954,000 in June.

Compared to last June, housing starts were up by 10.4 percent from a 757,000 annual rate.

Starts have fluctuated a lot in the past three months, but it has mostly been in the multi-unit segment.  In April, the annual rate was 1.005 million, marking the first time since 2008 that the pace had eclipsed one million starts.  Declines the past two months have primarily been attributable to slowdowns in multi-family homes.  In the 12 months to June, starts of single-family homes have averaged a 586,000 rate.  In June, starts on single-family homes were 591,000. 

Starts on homes with five units or more averaged a 270,000 pace in the past year through May.  In June, starts on buildings with five-units or more was 236,000.  Moreover, the month-to-month swings have been large, such as from 356,000 in March to 244,000 in April to 322,000 in May to 236,000 in June.

Judging by building permits, a proxy for future new homes, the trend is going to stay intact.  Permits for single-family homes in June rose by 0.6 percent to a 624,000 rate from a revised 620,000 mark in May.  It was the highest level for single-family permits in five years.  Authorizations last month for buildings with five or more units slid by 23 percent to 261,000 from 338,000 in May.  Overall, permits slipped by 7.5 percent to a 911,000-unit pace.

Ultimately, the steady pace of building single-family homes is a good takeaway from the report, especially considering average interest rates on a 30-year fixed mortgage rose to 4.5 percent in the week ending July 11, compared to a 3.35-percent average at the beginning of May.  Be that as it may, rates are still low.  Although steady, housing starts are still relatively low also, giving the housing sector plenty of headroom to continue to grow.  People are still buying, and buying at a pace that homebuilders aren’t banging up homes faster than demand dictates.  This will help keep prices strong.

On Tuesday, the National Association of Home Builders/Wells Fargo builder sentiment index was released for July, showing a jump to 57 from 51 in June.  Readings above 50 indicate that more builders view conditions as good, rather than poor.  It was the third straight month the builder’s confidence index rose, putting it at its highest level in about 7-1/2 years.

Wall Street is still walking a tight line in Wednesday trading, not reaching too far from even in either direction with the Dow and S&P 500 holding pinned near all-time highs.

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