WASHINGTON: US homebuilding fell for a second straight month in June and permits dropped to a two-year low, suggesting the housing market continued to struggle despite declining mortgage rates.
The Commerce Department report on Wednesday also showed housing completions at a six-month low and a modest increase in the number of homes under construction, indications that an inventory squeeze that has haunted the market could persist for a while. Weak housing and manufacturing are holding back the economy, offsetting strong consumer spending.
Land and labour shortages, as well as expensive building materials, are making it difficult for builders to meet demand for housing, especially in the lower price segment of the market.
Mortgage rates have been decreasing since the Federal Reserve signalled it was pausing its interest rate raising campaign. Borrowing costs could drop further as the US central bank is poised to cut rates this month for the first time in a decade to protect the economy from rising threats from Washington’s trade dispute with Beijing, and slowing global growth.
“Residential housing construction is one of the leading indicators of a recession, and while construction activity isn’t dropping precipitously, housing is stuck in a rut,” said Chris Rupkey, chief economist at MUFG in New York. “If the Fed thinks rate cuts are going to send housing construction up like a rocket, they better think again.”
Housing starts decreased 0.9 per cent to a seasonally adjusted annual rate of 1.253 million units last month as a rebound in the construction of single-family housing units was overshadowed by a plunge in multi-family homebuilding, the government said.
Data for May was revised slightly down to show homebuilding falling to a pace of 1.265 million units, instead of slipping to a rate of 1.269 million units as previously reported. Economists polled by Reuters had forecast housing starts dipping to a pace of 1.261 million units in June.
Single-family homebuilding, which accounts for the largest share of the housing market, increased 3.5 per cent to a rate of 847,000 units in June, partially recouping some of May’s sharp drop. Single-family housing starts fell in the Northeast, but rose in the Midwest, West and South.
Building permits tumbled 6.1 per cent to a rate of 1.220 million units in June, the lowest level since May 2017. Permits have been weak this year, with much of the decline concentrated in the single-family housing segment.
The housing market hit a soft patch last year and has been a drag on economic growth for five straight quarters. Economists have said housing had no impact on GDP in the second quarter.
The PHLX housing index fell, underperforming in a broadly weak US stock market. The dollar weakened against a basket of currencies, while US Treasury prices rose.
“These prints are in line with our view of a slowing housing market that is likely to continue on a downward trajectory for the rest of this year, but with no significant risks of an immediate slump,” said Igor Cesarec, an economist at Citigroup in New York. “We continue to expect residential investment to be either flat or provide a slight boost to GDP growth in the second half of the year.”
— Reuters
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