The U.S. Commerce Department reported Thursday
that housing starts fell 9.3% in June to a seasonally adjusted annual rate of
893,000, led by drops for single-family homes and apartments. Economists had
expected the government to report that the seasonally adjusted annual rate for
housing starts hit 1.02 million units in June, slightly up from an originally
reported rate of 1 million in May. On Thursday, the U.S. Commerce Department
revised May’s starts rate to 985,000.
For context, economists say about 1.7 million starts are
needed each year to maintain current stock and meet demand for replacement and
second homes.
It’s worth noting that June’s construction-starts drop of
9.3% had a confidence interval of plus or minus 10.3% — indicating that the
government isn’t sure whether the pace of new construction actually fell last
month.
Over the past year, escalating prices and mortgage rates
have hit housing demand, and a particularly harsh winter took a toll in the
first quarter. A relatively low number of homes on the market has also
constrained sales.
Officials have been worried about whether the housing
market’s rebound has petered out. Earlier this week, Federal Reserve Chairwoman
Janet Yellen told
lawmakers that the housing sector has “shown little recent progress,” and
that readings this year “continued to be disappointing.”
Starts for single-family homes fell 9% last month to the
slowest pace since November 2012, while starts in structures with at least five
units dropped 11.3%.
Why the home
construction report wasn’t completely awful
Although June’s headline home-construction data were
surprisingly bad, underlying details hint that the market may not be in awful
shape.
Of note, among the four
largest market — recorded a starts drop in June.
“The headline number was very weak, but the report is
exceptionally uneven and on balance is not an indication of a significant turn
in housing construction,” said Eric Green, head of
at TD Securities.
Meanwhile, in a spot of good news, permits for single-family
homes — an indicator of future demand — rose 2.6% to an annual rate of 631,000,
the fastest pace in seven months. Overall permits, which also include
apartments, fell 4.2% to a 963,000 pace in June.
Looking forward, sales and building rates could pick up,
thanks to a strengthening labor market. Indeed, home builders are becoming
perkier, with a reading on their confidence showing that they turned
optimistic this month on sales trends, following five months of pessimism.
