Home Starts Drop
New home construction and future construction permits dived drastically in June, reaffirming that the industry still has a long road to recovery. Economists were expecting better performance in both categories.
When compared to May, housing starts dropped 9.9 percent last month to a seasonally adjusted rate of 836,000 units, the Commerce Department said. Rising mortgage rates and dwindling supply are two factors contributing to the decline. Unusually wet weather could also have contributed to the drop in construction, economists say.
The decline is a hiccup for the industry. Although we have started the healing process, the latest report just goes to show that the market is still schizophrenic, and we should hold off on hasty celebrations.
Building permits, a key measure of future construction activity, slipped 7.5 percent.
The major factor influencing the decline was a 26 percent drop in multifamily housing. That category had shown signs of overbuilding, according to the Wall Street Journal.
Single-family homes starts, which account for the largest share of construction projects, declined by 0.8 percent. The silver lining is that single-family permits increased 0.1 percent.
Economists say the numbers, although discouraging, shouldn?t be a cause of too much worry.
?The outlook for housing is still bright,? Celia Chen, a Moody?s Analytics economist told the WSJ. The June data ?is more of a hiccup,? she said.
The decrease in starts happened in all four regions in the the country. The Northeast led by a 12.1 percent drop, followed by the South, which saw a 12 percent decline.
Builder Confidence Rises
Builder sentiment, a key industry measure, jumped in July to 57 ? its highest level since January 2006 ? according to the National Association of Homebuilders.
This is the third consecutive monthly gain. A reading above 50 is considered to be a positive outlook.
NAHB officials said that the demand for new housing is stronger despite the rising mortgage rates, and that has fueled the rise in builder confidence. Constructions costs are also low, encouraging builders to venture into new projects.
?Today?s report is particularly encouraging in that it shows improvement in builder confidence across every region as well as solid gains in current sales conditions, traffic of prospective buyers and sales expectations for the next six months,? noted NAHB Chairman Rick Judson, a homebuilder from Charlotte, N.C. ?This positive momentum could be disrupted by threats on the policy side, particularly with regard to the mortgage interest deduction and federal support for the housing finance system.?
The index registered gains in all three components. Current sales conditions jumped five points to 60. The measure for sales expectations in the next six months increased seven points to 67. The measure for traffic of prospective buyers also rose five points to 45. That?s the strongest readings for each category since late 2005.
?Builders are seeing more motivated buyers coming through their doors as the inventory of existing homes for sale continues to tighten,? said NAHB Chief Economist David Crowe. ?Meanwhile, as the infrastructure that supplies homebuilding returns, some previously skyrocketing building material costs have begun to soften.?
Mortgage Rates Decline
The average rate on a 30-year mortgage has fallen from its two-year high of 4.51 percent to 4.37 percent this week, according to mortgage giant Freddie Mac. The average on the 15-year mortgage ? which is popular for refinancing ? also declined to 3.41 from 3.53 percent.
The cut in rates is a result of decline in concern over the Fed relaxing its bond-buying program. After historic lows, mortgage rates spiked in the last two months with the expectation that the Fed will eventually begin decreasing its aggressive bond purchases.
The increase in rates caused dejection in buyers and builders, but with rates slowly on the decline, things will look up again for buyers.
Source: http://www.realestate.com/advice/housing-starts-decline-but-builder-confidence-is-up-65121/
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