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Housing Falters, Undermining U.S. Second Half Growth Prospects

Posted by Joseph Trevisani on Jul 17, 2013 9:39:00 AM

Housing starts and building permits fell steeply in June putting a brake on expectations that home construction would support economic growth into the second half of the year.

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Groundbreakings on new homes dropped 9.9 percent to an annualized rate of 836,000, the slowest pace since last August, according to the Commerce Department.  Economists in the Bloomberg survey had expected 960,000 new units. The prior month was revised up by 14,000 to 928,000.

Housing has been one of the few economic categories on a steady growth trajectory over the past year, and with both starts and permits in the first quarter at fewer than 70 percent of their 20 year average, construction had been expected to take up some of the slack from the consumer and investments sectors.

Permits for future construction, a leading indicator for the housing industry, dropped 7.5 percent to a 911,000 annual rate. Economists had forecast a 1.5 percent gain to 1 million. The May result was revised to 985,000 from 974,000.

Monthly annualized starts in the second quarter were 8.9 percent lower at 872,000 than the 957,000 average in the first three months of the year. Building permits, however, rose to 967,000 on average in the second quarter, a 5.2 percent increase over the first quarter.

Builders seem to have developed a certain amount of caution in the past three months despite yesterday’s National Association of Home Builders Index (NAHB) at 57 for July, the most optimistic the industry has been in over seven years.

Permits are essentially options on home construction, builders do not have to begin construction and may choose to let the permit lapse if they feel economic conditions have changed.

The decrease in overall starts and permits was accounted for by a fall in multi-family units, always a more volatile category as the projects tend to be on a large scale.

Starts for multi-family homes skidded 26.2 percent in June to a 245,000 annual rate. Construction on single family homes fell just 0.8 percent to 591,000, the slowest since last November.

Permits for multiple family dwellings dropped 21.4 percent to 287,000. Single family permits climbed 0.6 percent to 624,000, the highest since May 2008.


Joseph Trevisani

Chief Market Strategist


Charts: Bloomberg

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