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Market CommentariesNew Residential Construction Disappoints In June

At 8:30 A.M. (EDT), the Department of Housing and Urban Development reported data on new residential construction for the month of June. At first blush, the data looked disappointing, as both building permits and housing starts fell on a month-to-month basis.

Specifically, the report showed that housing starts in June came in at a seasonally adjusted annual rate of 893,000 homes. While the latest tally was 7.5% above the June, 2013 rate of 831,000 units, it was a notable 9.3% below the revised May figure of 985,000. Meanwhile, building permits, which tend to be a more telling indicator of future construction activity, came in at a seasonally adjusted annual rate of 963,000. That figure was down 4.2% from the revised May estimate of 1.005 million units, but 2.7% ahead of the June, 2013 reading. While the recent residential construction data do not change our stance that the homebuilding market is improving, the report does suggest that the improvement may be a bit uneven over the remainder of this year.

A closer examination showed housing starts in the South and West, the two largest homebuilding regions, were disappointing. Specifically, housing starts on a sequential basis fell 29.6% in the South and were up a nominal 2.6% in the West. Conversely, housing starts in the smaller homebuilding regions, the Northeast and the Midwest, were up nicely, but this could be driven by delays from bad weather earlier in the year than from a significant pickup in demand for homes in those regions. Meantime, building permits were off 6.3% and 1.8%, respectively, in the South and the West.

All in all, the latest data on housing starts and building permits did not show the pickup in new residential home construction that many economists would have liked to have seen at this point in the economic up cycle. That said, perhaps we will see some improvement in the second half of the year, as the economy is expected to show nice growth after a very difficult weather-driven start to 2014. Too, it is possible that an improvement in the nation’s unemployment rate and several months of nonfarm payroll additions of more 200,000 will increase the pool of perspective homebuyers and give the builders more confidence to speed up the pace of construction. The Federal Reserve is trying to do its part by keeping short-term interest rates near-zero until at least the early stages of 2015. We shall see if these factors lead to a pickup in home construction in the back half of this year. The housing and homebuilding sectors are important cogs in the nation’s economic output.

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