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Housing Starts Rise More than Forecast, Remain in Tight Range

Posted by Joseph Trevisani on Jul 19, 2016 6:30:52 PM

Construction of new homes rose more than predicted in June but the modest advance was typical of the restricted range and the meandering nature of the housing market over the past year and a half.

Ground-breakings for new residential housing rose 4.8 percent to an annual rate of 1.189 million units, according to the Commerce Department on Tuesday. This was more than the 0.2 percent gain forecast and the fastest pace since February. However, May's starts were revised lower to 1.135 million units from 1.164 million, dropping 1.7 percent from May to June. Building permits, an indicator of future construction rose 1.5 percent to 1.153 million licenses. 

Since starts broke above 1.1 million annually for the first time since the housing bubble burst last April, the rising trend that had been in place for the prior four years has dissipated.

From February 2011 to April 2015 starts climbed 130.5 percent from an annual rate of 517,000 to 1,192,000 for an average gain of 2.51 percent a month.

In the 14 months subsequent starts have averaged 1.149 million a month. But the average variation has been a miniscule 3,571 units, 0.3 percent each month. The range has varied from a low of 1.053 million in May 2015 (-86,000, -7.5 percent) to a high of 1.213 million in June 2015 and February 2016 (+64,000, +5.6 percent).   

The home construction industry has recovered from the collapse of the housing bubble in the middle of the last decade but it remains a pale image of its historical self.

The past 18 months have been the best for the residential construction industry since 2007 if judged by the number of new homes built each year.. Since the beginning of 2015 1.125 million new residences have been put up every twelve months. The last year with a better total was 2007 at 1.342 million. But as a reading of the health of the housing construction market 2007 was a very deceptive year.

The home constructions market had peaked in 2005 at 2.073 million units. Every subsequent year to the bottom in 2009 was a chronicle of the implosion of construction, jobs and home values: 2006-1.812 million; 2007-1.342 million; 2008-900,000; 2009- 554,000.  The last healthy year, albeit a bubble was 2005.

Analysts have cited several reasons for the lack of continued progress in the housing market. Credit standards remain tight, somewhat counteracting historically low mortgage rates. In some of the most active local markets land use ordinances restrict new construction.  

Though the job market has produced a steady supply of employment, there is a shortage of the kind of quality long term and fulltime employment that permits people to make the 30 year commitment a home purchase normally requires.  Close to half the jobs created since the recession have been for part-time or low wage employment. In addition salaries have not recovered to pre-crash levels. Annual wage gains, even seven years after then end of the recession are barely two-thirds of their historical average. 

Housing start statistics go back 57 years to January 1959. Over that span starts have averaged 1.441 million a year.  

Since the start of this series the U.S. population has grown 81 percent from, 177.87 million (July 1959) to 321.77 million (July 2015) yet housing starts remain 21 percent below their long term average. 

In housing recovery is a relative term. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

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