Housing Starts and Building Permits Dip in July

New home permits and starts dipped slightly in July after showing some signs of strength the month before, according to a government report released on Tuesday.

Permits for new homes - an indicator for future building activity - fell 3.2% after a small increase in June. Housing starts - which represents current building activity - dipped 1.5% in July after a large increase the month before, the Commerce Department’s U.S. Census Bureau reported. Economists had expected a 1.8% decline for permits and a 4.6% decrease for starts.

“There are still a significant number of foreclosed homes on the market across the country, making it more difficult for the new housing market to grow,” Acting U.S. Commerce Secretary Rebecca Blank said. “Our focus is on job creation, because as more people find employment in good paying jobs, they will become more likely to invest in a home–driving the inventory of foreclosed homes down and the construction of new homes up.”

Bob Nielsen, a builder in Reno, NV and chairman of the National Association of Home Builders (NAHB), said, "Although single-family housing production slid a few notches in July, the number was right in line with the second quarter average, so we view this report as an indication of relative stability.”

NAHB Chief Economist David Crowe said that while overall housing construction held steady in July, multi-family properties are showing greater strength due to the high demand for rentals. "Going forward, we expect housing production to show modest improvement through the end of this year, particularly in select markets that do not have large inventories of distressed homes and where economic stability is more apparent," he added.

Seasonally-adjusted, single-family home starts fell 4.9% in July while multi-family construction rose 7.8% to its highest level since January. Permits for single-family homes remained virtually unchanged with a 0.5% gain and permits for multi-family units fell 10.2% in July.

By region, starts in the Northeast shot up 34.7% and permits increased 18.3%. In the Midwest starts plummeted 37.7% and permits declined 7.1%. Starts in the South gained by 5.6% and permits rose 3.6%. In the West, starts fell 3.0% and permits dropped 7.8% in July.

In a separate report released by the NAHB on Monday, builder confidence for August held unchanged from the month before at a low level of 15 in the NAHB/Wells Fargo Housing Market Index (HMI). An index reading above 50 means that more builders feel conditions are good than poor.

By region, the HMI in the Northeast increased to 19, in the West rose to 15, the South held even at 17, and the Midwest fell to 10.

Nielsen said that the challenges builders continue face include “competition from the large inventory of distressed homes on the market, inaccurate appraisal values, and issues with their buyers not being able to sell an existing home or qualify for favorable mortgage rates because of overly tight underwriting requirements.” He added that 41% of builders surveyed indicated they have lost sales due to the buyer not being able to sell their current home.

Crowe said, "While buying conditions are very favorable in terms of prices, interest rates and selection, consumers are worried about what the future will bring, and builders are echoing those sentiments in their responses to the HMI survey."





Sources:
U.S. Department of Commerce
National Association of Home Builders