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June housing starts displayed surprise weakness falling 9.9% to 836,000 units.  The trade was expecting a gain of 951,000. The decline was concentrated in multi-family starts, which are volatile and plunged 26% to 245,000 units after jumping 28% in May.  Single family starts were down 0.8% to 591,000 units, but remain off their February 2013 peak of 652,000 units.

Every region saw a decline in starts, but single family starts were up in three of four regions.  Single family starts declined 3.9% in the South, but rose between 2.1% and 4.0% in the Northeast, Midwest, and West.

June permit data was more constructive for the housing market.   Total permits sank 7.5% to 911,000 units (985,000 expected), but single family permits actually expanded 0.6% to 624,000.  Single family permits hit a new cycle high and suggest the market continues to firm on the back of historically low new home inventories.  Single family permits ended 2012 at 584,000 and were 501,000 in June 2012.

Single family permits were up in every region, but the South where they declined 0.6%.  Single family permits rose between 1.9% and 2.2% in the three other regions.

There is an amusing divergence between housing starts and the National Association of Home Builders Survey developing.  Starts have stalled, while the NAHB survey has risen dramatically.  The NAHB survey is released a month ahead of starts and thus can have leading characteristics.  The survey suggests that housing starts should rebound in the coming months

The SPDR S&P Homebuilders ETF (XHB)has remained below its May high, and has traded more in line with weakness in starts than the strength in the NAHB survey.   The MBA Mortgage Purchase index is now down 8.1% from the May high, but bounced slightly last week to 202.7.  The soft tone of starts and jump in mortgage rates may have been factors causing Fed Chairman Bernanke to lean dovish in this morning’s prepared remarks for the House Financial Service Committee testimony.

Tell me what you think:

Will the drop in housing starts concern Federal Reserve policy makers and lead to an increase in dovish Fed Member rhetoric?

 Is the slowdown in starts just a pause before another leg upward or are still high unemployment, weak wage growth, and surging home prices a headwind to improved construction activity?

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