Housing starts rise 5.9% in July

Housing starts grew almost 6% in July, driven by an increase in apartment construction that offset a decline in new single-family home building.

Housing starts rose in July, advancing the industry's steady recovery, but at a slower pace than forecasters expected.

Starts rose 5.9% from June to a seasonally adjusted annual rate of 896,000 from June's revised figure of 846,000, the Census Bureau said Friday.

Single family housing starts in the month, at a seasonally adjusted annual rate of 591,000, were down 2.2% from June.

"They're just not showing recent strength," says Patrick Newport, economist with IHS Global Insight. "This market has lost some of its momentum."

Higher interest rates may be affecting buyers, Newport says, or tight credit conditions could be making it hard for builders.

Builders have also said attractive lots remain in short supply in many markets given that little land development was done during the housing downturn.

Although single-family starts hit an eight-month low, year-to-date total home starts are still up 24% over 2012 levels, showing a clear upswing in construction, says Jed Kolko, Trulia economist.

The multi-family numbers are volatile, but still the darling of the construction industry, he says.
Much of July's growth in housing starts was driven by an increase in apartment construction, which rose 25.5% from June.

The construction industry, which has become a leader in the economy, still has a long ways to go in terms of recovery. Overall, starts are still 40% below normal levels before the housing bust.

The 5.9% rise in housing starts left the level of starts well below the 1 million unit rate that Wall Street had been looking for, says Steven Ricchiuto, chief economist with Mizuho Securities.
Permit growth was also modest relative to expectations, he says.

Building permits — a predictor of future starts — rose 2.7% in July from June to a seasonally adjusted annual rate of 943,000. They're 12.4% above year ago levels.

Permits in July were up from June in all four regions of the U.S., led by a 7.1% jump in the West. Permits were up 2.8% in the Midwest, 1.1% in the South and 1% in the Northeast.

In July, housing starts made their biggest jump in the Northeast, up 40.2% from June, vs. 25.4% in the Midwest and 7.2% in the West. They fell 7% in the South.

The home construction numbers follow others showing continued recovery in the housing sector.

Home prices were up almost 12% in June, year over year, CoreLogic says. Foreclosure activity in July was down 32% from the same month last year. Home builder confidence, meanwhile, rose in August to its highest level in nearly eight years.

However, the slow economic recovery means people are taking a long time to move out of their parents' homes and become renters or owners, Kolko says.

And while housing prices can bounce back more quickly as investors and others take advantage of low prices and rates, the construction industry recovery can't move much faster than the overall economic recovery.

Going forward, increasing demand for housing will help stimulate more construction, says mortgage giant Freddie Mac.

It expects housing starts to hover just below 1 million, on a seasonally adjusted basis, over the second half of this year. If so, that will be the best six-month building pace since the first half of 2008.

Article courtesy of USA Today