U.S. Housing Starts Plunge to a Nine-month Low in June


 
Author: RBC Financial Group Economics Department
Location: Toronto
Date: 2014-07-18

  • Housing starts dropped by 9.3% to an annualized 893,000 in June 2014 from a revised 985,000 units in May (was 1,001,000), thereby missing market expectations for an increase to 1,020,000 units.
  • The number of building permits issued also declined, falling by 4.2% to 963,000 annualized units in June after falling to 1,005,000 units in May from a six-month high of 1,059,000 in April. Market expectations had been for an increase to 1,035,000 annualized units.
  • With new home construction bouncing back in April to a five-month high, after rising mortgage rates and unseasonably cold temperatures stalled activity earlier in 2014, the declines in housing starts in May and June likely reflected payback from this outsized surge. Even with the recent pullback, housing starts still averaged 980,000 annualized units in the second quarter of 2014, which was a 26.2% annualized improvement compared to the 925,000 average in the first three months of the year. While today’s reading is unlikely to temper concerns echoed by Federal Reserve Chair Yellen in recent testimony that housing market activity has “continued to be disappointing this year” and has shown “little recent progress,” there are indications that demand for new homes will gain traction in the coming quarters. Broad-based gains across components of homebuilder confidence brought this measure to a six-month high in July while building permits have sustained robust levels in recent months. Furthermore, with rising competition among lenders expected to alleviate tight lending conditions, we anticipate that overall homebuilding activity will resume an upward trend and that starts will return to levels above the million-unit mark during the forecast horizon.
  • In a separate report, initial jobless claims dropped to 302,000 in the week ending July 12, 2014 from a revised 305,000 (was 304,000) in the previous week. The level of claims in the latest week was well below market expectations for a 310,000 reading. The four-week moving average of claims eased to 309,000 from 312,000 the previous week.

    •  

    Privately owned housing starts in the US plunged by 9.3% to an annualized pace of 893,000 units in June to build on the previous month’s revised 7.3% decline to 985,000 units (initially reported as a 6.5% drop to 1,001,000). The June reading was much softer than the 1,020,000 units that had been expected by markets although followed a reading of 1,063,000 in April that marked a five-month high.

    The slowing pace of new home construction in June reflected declines in both single-unit starts (-9.0% to 575,000) and the volatile multiple-unit starts component (-9.9% to 318,000). The drop in single-unit starts built on the previous month’s 2.6% decline to bring this component to its lowest level since November 2012. Multiple-unit starts also fell for the second consecutive month although remained above its recent March 2014 low of 315,000 annualized units. The decline in homebuilding activity solely reflected a pullback in housing starts in the South (-29.6% to 375,000) as both single-units starts and multiple-unit starts plunged in the month (-20.1% and 47.6%, respectively). In contrast, activity accelerated in the Northeast (14.1% to 105,000), Midwest (28.1% to 219,000), and West (2.6% to 194,000) after falling sharply in each of the regions in the previous month.

    The number of building permits issued also declined in June, falling by 4.2% to 963,000 annualized units, to build on the 5.1% decline to 1,005,000 units in the previous month. The pullback reflected a 14.9% drop in permits for multiple-unit homes (to 332,000) that more than offset a 2.6% rise in permits for single-unit residences (to 631,000).

    With new home construction bouncing back in April to a five-month high, after rising mortgage rates and unseasonably cold temperatures stalled activity earlier in 2014, the declines in housing starts in May and June likely reflected payback from this outsized surge. Even with the recent pullback, housing starts still averaged 980,000 annualized units in the second quarter of 2014, which was a 26.2% annualized improvement compared to the 925,000 average in the first three months of the year. While today’s reading is unlikely to temper concerns echoed by Federal Reserve Chair Yellen in recent testimony that housing market activity has “continued to be disappointing this year” and has shown “little recent progress,” there are indications that demand for new homes will gain traction in the coming quarters. Broad-based gains across components of homebuilder confidence brought this measure to a six-month high in July while building permits have sustained robust levels in recent months. Furthermore, with rising competition among lenders expected to alleviate tight lending conditions, we anticipate that overall homebuilding activity will resume an upward trend and that starts will return to levels above the million-unit mark during the forecast horizon.

    In a separate report, initial jobless claims dropped by 3,000 to 302,000 in the week ending July 12, 2014 from a revised 305,000 (was 304,000) the previous week. The level of claims in the latest week was below market expectations for a 310,000 reading; however, summer shutdowns for retooling in the auto sector can make adjusting the data for seasonal swings more difficult. The four-week moving average of claims eased to 309,000 from 312,000 the previous week.

    Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.

     

    To subscribe or visit go to:  http://www.riskcenter.com

    http://riskcenter.com/articles/story/view_story?story=99916884