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Housing's Bad Spell Continues: Starts, Permits Fall in June

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U.S. homebuilding tumbled in June for the second straight month as both housing starts and building permits declined from a month ago. The industry is plagued with land and labor shortage that is making it difficult for homebuilders to meet demand despite a declining borrowing costs environment.

Per the latest jointly-released report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, housing starts fell 0.9% to a seasonally adjusted annual rate of 1.253 million units in June from the previous month, missing the consensus estimate by 0.4%. A surge in single-family housing starts was overshadowed by a fall in the multi-family homebuilding units. However, the figure remained 6.2% above from the year-ago number.

Building permits for the month dropped 6.1% in June to 1.22 million units, the lowest since May 2017. It also lagged the consensus mark by 5.7% and deteriorated 6.6% on a year-over-year basis.



U.S. Housing Continues to Struggle Despite Declining Rates

In June, privately-owned housing starts fell 9.2% and 4.9% from May in the fastest growing regions of the country, South and West, respectively. Though the metric increased in the slowest Northeast and Midwest regions, by 31.3% and 27.1%, respectively, it could not make up for the decline.

The bright spot is the 3.5% rise in single-family homes starts (accounting for nearly 68% of total new starts in June) after a sharp decline in May. However, the upside was countered by a 9.4% decline in multi-family starts.

Again, building permits have been weak this year, mainly due to a decline in the single-family housing segment. Single???family permits rose just 0.4% to a rate of 813,000 units in June.

June’s 6.1% drop in building permits depicts builders’ inability to speed up construction even though borrowing costs have been declining steeply after hitting 4.94% last November. According to the latest data from mortgage finance agency Freddie Mac, the 30-year fixed mortgage rate dropped to about 3.75% for the week ending Jul 11.

Despite lower rates, mortgage applications declined 1.1% in the week ending Jul 12, from a week earlier (on a seasonally adjusted basis), according to a Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey.

Will Housing Industry See Recovery?

Homebuilders, namely Lennar Corporation (LEN - Free Report) , KB Home (KBH - Free Report) , Toll Brothers, Inc. (TOL - Free Report) , Meritage Homes Corporation (MTH - Free Report) and D.R. Horton, Inc. (DHI - Free Report) , continue to report solid demand for single-family homes. However, labor shortage, a dearth of buildable lots and rising construction costs have been impeding construction of homes at affordable prices.

Considering the demand trend, builder confidence for single-family homes rose one point to 65 in July, marking the sixth consecutive month of steady range in the low- to mid-60s. Yet, the same is three points below the year-ago level of 68.

Even borrowing costs are expected to drop further as the Fed is poised to cut rates this month for the first time in a decade.

However, over the past few quarters, the housing sector hasn’t paid much to the economy even with the best jobs market in decades. Though residential construction occupies a small fraction of the economy, it is an important component of growth. Builders are facing difficulties in finding low-priced lots and skilled workers. Also, higher aluminum and steel costs due to revised tariffs have been eating into margins.

Although lower mortgage rates along with moderate home prices have been giving strength to home buyers, the above-mentioned headwinds are somewhat marring the positives.

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