Housing Starts Drop Big, But Recovery Not Derailing, Analysts Say

Housing Starts Drop Big, But Recovery Not Derailing, Analysts SayHousing starts surprised everybody with a sharp decline for June, but home builders and industry analysts are saying it’s not a sign of a derailed housing recovery.
U.S. housing starts and permits for future home construction unexpectedly fell in June, possibly a sign of an economic slowdown in the second quarter.
The Commerce Department said Wednesday that housing starts fell 9.9 percent to a seasonally-adjusted annual rate of 836,000 units — the lowest level since August last year.
May’s starts were revised up to show a 928,000-unit pace, in place of the previously reported 914,000 units. Economists had expected groundbreaking to rise pass the 950,000-unit rate in June.
Permits to build homes dropped 7.5 percent last month to a 911,000-unit pace. Economists had project they would rise to a 1-million unit pace.
Builders are blaming the overall housing starts decline on the pullback in the construction of multifamily buildings, which has slowed following recent months of strong activity.
Meanwhile, the pace of single-family production held fairly even in June, with a decline of less than one percentage point.
“While demand for new homes and apartments has grown considerably over the past year, builders are still being very careful not to get ahead of the market, and today’s report reflects that cautious approach,” said Rick Judson, Chairman of the National Association of Home Builders (NAHB) and a home builder from Charlotte, N.C.
Industry analysts agree.
“This reflects a characteristically volatile multi-family sector rather than renewed weakness, and we expect homebuilding volumes to rise further later this year,” writes Paul Diggle of Capital Economics.
The annualized rate of multifamily production declined 26.2 percent to 245,000 units in June after a 28.2 percent gain in the previous month.
Meanwhile, single-family construction slipped by a marginal 0.8 percent to a 591,000-unit pace.
Regionally, combined starts activity declined 12.1 percent in the Northeast, 7.4 percent in the Midwest, 12 percent in the South and 5.4 percent in the West in June.
“The large dip in multifamily production in June follows a boost of activity in May, and is consistent with the volatility that has come to characterize that sector as well as the uneven pace of the housing recovery,” noted NAHB Chief Economist David Crowe.
Building permits, which are an indicator of future building activity, declined 7.5 percent to 911,000 units in June. This was due entirely to a pullback in the multifamily sector, where permits fell 21.4 percent to 287,000 units. Single-family permits registered a marginal 0.6 percent gain to 624,000 units – the best pace in five years.

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