July Housing Starts Edge Up, Barely
The good news: housing starts improved in July, HUD and the Census Bureau reported yesterday. The not-so-good news: starts are still not where they should be. But they’re getting there.
The report said privately owned housing starts in July rose to a seasonally adjusted annual rate of 1.168 million, 0.9 higher than June’s downwardly revised 1.158 million but 1.4 percent lower than a year ago. Single-family housing starts in July rose by 0.9 percent to 862,000 from June’s revised 854,000; the rate for starts for buildings with five units or more rose to 303,000, up by 3.1 percent from June (294,000) but down by 9.6 percent from a year ago.
Regionally, strong gains in the South and Midwest offset declines in the West and Northeast. In the South, starts rose by 10.4 percent in July, seasonally adjusted, to 636,000 units in July from 576,000 units in June and improved by 4.1 percent from a year ago. In the Midwest, starts rose by 11.6 percent in July to 173,000 units from 155,000 units in June and improved by 7.5 percent from a year ago.
In the West, however, starts fell by nearly 20 percent to 262,000 units, seasonally adjusted, in July from 326,000 in June and fell by nearly 11 percent from a year ago. In the Northeast, starts fell by 4 percent to 97,000 units in July from 101,000 in June and fell by 9.6 percent from a year ago.
Mark Vitner, Senior Economist with Wells Fargo Securities, Charlotte, N.C., described July starts as “unspectacular, but solid,” and noted while recent activity has been below expectations, builder confidence remains elevated, as reported by the National Association of Home Builders earlier this week.
“While new units started in July came in below expectations for the second straight month, starts are still running 6.2 percent ahead of last year on a year-to-date basis,” Vitner said. “Starts in the South increased 10.4 percent in July and regained their footing after declining for the prior two months. This is a positive sign, as roughly half of all new construction takes place in the South.”
Mark Fleming, chief economist with First American Financial Corp., Santa Ana, Calif., said despite cost headwinds, home builders are pushing through new construction projects. “Home buyers looking for more housing supply to choose from can take heart, as the Census Bureau report on housing construction showed builders are starting work on additional housing, inching closer to balancing inventory with demand,” he said.
The report said privately owned housing units authorized by building permits in July rose by 1.5 percent to a seasonally adjusted annual rate of 1.311 million from 1.292 million in June and by 1.7 percent from a year ago. Single-family authorizations in July rose to 869,000; 1.9 percent higher than June (853,000). Authorizations of units in buildings with five units or more rose to 410,000 in July, up by 1.7 percent from June (403,000) and by nearly 3 percent from a year ago.
Privately owned housing completions in July fell to a seasonally adjusted annual rate of 1.188 million in July, 1.7 percent below June’s revised 1.209 million and 0.8 percent below a year ago. Single-family housing completions in July fell to 814,000, 5.2 percent lower than June’s revised 859,000. The July rate for units in buildings with five units or more was 371,000, up by 8.2 percent from June and by the same percentage from a year ago.
“That builders continue to express such a high degree of confidence in current market conditions supports our stance that housing starts will be stronger in coming months,” Vitner said. “While our expectations have been slightly scaled back recently, we still expect new residential construction to strengthen. Rising material prices have been a detriment to new development for much of the year. Given higher costs for materials such as lumber, many projects now fail to pencil out and have been delayed, especially for entry-level homes. However, material prices have begun to ease recently, a trend that should continue in the second half of the year.
“The increase in permits is a welcome sign as a strong economy with continuing job and income growth, Millennials ageing into homeownership and baby boomers living longer and more independently than ever, will continue to drive demand and keep the pressure up on the housing market,” Fleming said.