The rate of US home construction declined in June with apartment building leading the drop, offsetting a small increase in the rate of construction on new single-family homes. The rate of permits has now hit a 2-year low, indicating further poor performance to come.
- Housing starts dropped -0.9% to an annualized rate of 1.25 million, the slowest rate in 3 months.
- Single-family homes rose 3.5% to 847,000 and permits in that category rose 0.4% to 813,000.
- Overall, permits dropped -6.1% to 1.22 million, indicating weak activity in the future.
Housing starts dropped -0.9%, matching the previous month’s figures and sinking below the expected June reading of -0.7%. The significant -6.1% drop in permits, led by a drop in applications to build apartment complexes, points to low future construction, indicating that the struggling housing market may continue to falter over the course of the year.
While single-family homebuilding saw growth, the more volatile category of multifamily homes, which includes apartments and condominiums, has seen poor performance. The rate of construction is down -9.2% and the rate of permits tanked -16.8% for June in that category.
Two out of four regions in the US saw an increase in housing starts last month with a 31.3% increase in the Northeast and a 27.1% gain in the Midwest. Meanwhile, construction dropped -9.2% in the South and -4.9% in the West.
An additional 165,000 homes have been approved for construction but not yet started – the yearly low indicates that builders have a smaller backlog than last year.
Lower borrowing costs, thanks to recently reduced interest rates on mortgages, have stabilized single-family home construction to an extent. The rate of a 30-year fixed mortgage dropped from 4.94% in November to 3.75% according to mortgage finance agency Freddie Mac, and the Federal Reserve is likely to implement general rate cuts this year that may contribute to even lower mortgage rates.
The lower rates and slower price gains have contributed to affordability in the market, allowing new buyers to enter and buy their first home. A report on Tuesday showed homebuilder sentiment increased in July as a result of robust demand.
Fed Chairman Jerome Powell made a statement on the issue last week to say that homebuilders are being obstructed by a “series of factors” including a shortage of skilled labor in the tight labor market, higher material costs, and the ongoing difficulties emerging from the trade war with China.
After softening last year, the housing market has now been a drag on the US economy for 5 straight quarters, and has most likely negatively impacted GDP results for Q2 2019.
Despite the unexpectedly poor construction data, gold faces selling pressure in today’s session. Spot gold last traded at $1,410.52/oz, up 0.09% with a high of $1,410.52/oz and a low of $1,400.64/oz, seeing little bullish reaction to the housing market report.