The Census Bureau and the U.S. Department of Housing and Urban Development said that housing starts unexpectedly declined for the second straight month. Starts dropped from an annualized 985,000 in May to 893,000 in June. This was down from the faster pace of 1,063,000 in April; although, that figure appears to be a bit of an outlier. Excluding April, the average rate of new housing starts through the first half of 2014 was 930,600. Even with that in mind, June’s pace was disappointing and a sign that the housing market remains weaker than we would prefer.
Indeed, new housing starts were off for both single-family (down from 632,000 to 575,000) and multi-family (down from 353,000 to 318,000) units.The pace for single-family starts was the lowest level since November 2012, highlighting some persistent softness in the residential construction market so far this year. While the longer-term trend remains positive, single-family housing starts have fallen 4.3 percent over the past 12 months.
Meanwhile, housing permits data also fell, down from 1,005,000 units at the annual rate in May to 963,000 in June. Unlike the starts figures, however, there were some encouraging signs. Single-family permitting rose for the second straight month, up from 597,000 in April to 615,000 in May to 631,000 in June. This could suggest stronger growth in the housing market in the coming months for single-family homes. At the same time, multi-family units have been weaker, pulling the headline figure lower. Multi-family permitting dropped from 462,000 to 390,000 to 332,000 over the same three months, with the most recent pace being the slowest in 10 months.
Overall, June’s housing numbers were quite discouraging. There was optimism a couple months ago that residential activity was beginning to pick up after weakness since last summer, and the consensus expectation had been for housing starts to exceed one million again in June. Yet, the housing market continues to underperform through the first six months of this year. Financial difficulties in obtaining credit (particularly for first-time home buyers) and economic uncertainties remain obstacles for some. Still, I continue to predict housing starts of 1.1 million by year’s end, and we can put some hope in the single-family housing permits figures and the possibility of improved activity moving forward.
For its part, the Housing Market Index (HMI) from the National Association of Home Builders (NAHB) and Wells Fargo, released yesterday, suggested that builders were more upbeat of late. The HMI increased from 49 in June to 53 in July, the first time the index has surpassed the all-important threshold of 50 since January. When the HMI exceeds 50, it indicates that more home builders are positive than negative in their views of the market. More importantly, the index of single-family sales increased from 53 to 57, with expected sales over the next six months rising from 58 to 64.
As such, NAHB Chief Economist David Crowe was more positive in his assessments of the housing market, with recently better jobs numbers boosting sentiment. He said, “As employment increases and those with jobs feel more secure about their own economic situation, they are more likely to feel comfortable about buying a home.” Hopefully, this improvement in home builder confidence helps to foreshadow better sales in the months ahead.
Chad Moutray is the chief economist, National Association of Manufacturers.