Unexpected decline in US housing starts in June shows housing recovery still weak; report particularly disappointing because many of previously given reasons for weak housing numbers--like unusually bad winter weather--no longer apply
July 17, 2014
(New York Times Online)
– Remember when 2014 was going to be the year home building finally got out of the doldrums and accelerated back toward health — or at least to filling something closer to its usual role supporting growth? Yeah, never mind.
That’s right, another disappointing reading on the housing market was released Thursday morning. The number of housing units that builders started work on fell 9.3 percent in June, to an 893,000 annual rate. The number of housing permits issued by local governments, a forward-looking measure that government statisticians consider less prone to measurement error, fell 4.2 percent. Forecasters had expected both numbers to rise.
For context, economists think the United States needs to build something on the order of 1.5 million new housing units a year to keep up with a growing population and older homes falling into disrepair. The nation hasn’t consistently built more than 1 million a year since the 2008 recession. Instead, home-building activity has mostly been bouncing around in the 900,000 to 1 million range since the start of 2013, not exhibiting any clear signs of acceleration.
What makes the June results curious — and particularly disappointing — is that some of the excuses heard for weak housing numbers don’t hold water any more.
The unusually bad winter weather that slowed construction in January and February is now long past. If anything, you might expect a catch-up effect from projects delayed then to be a bit of a tailwind for housing this summer.
And mortgage rates spiked in the second half of 2013, perhaps leading builders to exercise a greater note of caution as they weighed new projects. But rates have fallen more or less steadily through the first half of 2014. The 30-year, fixed-rate mortgage averaged 4.5 percent at the start of the year, according to Freddie Mac, but was 4.1 percent at the end of May, as builders were starting to plan how many houses to begin building in June.
It’s not that the report was uniformly negative. Permits issued for single-family homes, as opposed to apartment buildings with many units, actually rose a bit, from a 615,000 annual rate to 631,000. The decline was concentrated in permits issued for homes in projects with more than five units, which have been a mainstay of construction activity in recent years.
And the decline in housing starts was entirely concentrated in the Southern states, the region that by the census’s definition stretches from Delaware to Texas. Housing starts actually increased in each of the other three census regions, but fell by a 158,000 annual rate in the South. That could be an aberration, but it bears watching in future months.
Regardless, the basic lesson to be learned from the latest housing numbers is a simple one: The housing recovery is, at best, weak. And it may not be much of a recovery at all.
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