U.S. Housing Starts Drop by Most Since '16 to Nine-Month Low

(Bloomberg) -- U.S. new-home groundbreaking and permits fell in June to the slowest paces in nine months, as higher mortgage rates and elevated costs for labor and materials pinch the housing market, government figures showed Wednesday.

Key Takeaways

Shares of homebuilders fell after the report. While the data are volatile and often subject to significant revisions, the report suggests growth in the housing market may be more modest than previously thought amid constraints for both buyers and developers. Economists may wait for July data to judge whether the trend in construction has shifted. The figures mark the weakest activity since hurricanes Harvey and Irma struck the U.S. in August and September.

Potential customers are grappling with elevated interest rates and ever-rising home prices that are easily outpacing wage gains, even as a robust job market and tax cuts support demand. For builders, issues include elevated prices of lumber and other imported materials, partly due to tariffs. Developers have also cited difficulties finding qualified workers and ready-to-build lots.

The data follow a report Tuesday showing that a gauge of homebuilders’ confidence was unchanged in July from the prior month to match the lowest level this year. An index of the six-month sales outlook fell to the lowest since September, according to the survey from the National Association of Home Builders/Wells Fargo.

Wednesday’s report wasn’t as bad as the main numbers indicate, according to Ian Shepherdson of Pantheon Macroeconomics, who pointed out that the “most important” number, single-family permits, rose 0.8 percent from the prior month. At the same time, the trends in both construction and sales of such homes “have been about flat, more or less, since last fall,” and the housing market has probably peaked for this expansion, he wrote in a note.

Analyst’s View

“You could explain a decline, but not a decline of that magnitude,” Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC. He said Wednesday’s figures were “a one-month glitch and we’ll be somewhat back on track in the coming months, led by an economy that’s expanding, incomes which are expanding, employment which has been surprisingly strong, and although mortgage rates are rising, they’re not rising nearly as fast as they could.”

Other Details

• Single-family home starts fell to a 858,000 rate, slowest since December, from 944,000 the prior month
• Groundbreaking on multifamily homes, such as apartment buildings and condominiums, fell to an annual rate of 315,000; data on these projects can be volatile
• All four regions posted declines in starts, led by a 35.8 percent drop in the Midwest and a 9.1 percent decrease in the South
• Some 160,000 homes were authorized but not yet started in June, up from 158,000 in May; the number of housing units currently under construction was 1.12 million, down slightly from the prior month
• Report shows wide margin of error, with a 90 percent chance that the June housing-starts figure was between a 20.6 percent and 4 percent drop
• Report released jointly by the Census Bureau and Department of Housing and Urban Development in Washington

--With assistance from Kristy Scheuble and Vince Golle.

To contact the reporter on this story: Katia Dmitrieva in Washington at edmitrieva1@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle

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