U.S. housing starts rise for second straight month

New residential construction may be showing signs of new life. U.S. housing starts unexpectedly rose for the second month in a row, increasing 3.6 percent in June, the U.S. Commerce Department announced Friday (pdf).

Housing starts rose to a 582,000-unit, seasonally adjusted, annual rate in June. It's the highest level of starts since November 2008. Economists surveyed by Bloomberg News had expected housing starts to total a 530,000 annualized rate in June. Housing starts totaled a revised 562,000-unit rate in May, and 458,000 in April.

In addition, starts of single-family homes jumped 14.4 percent in June to a 470,000-annualized rate. Also, building permits, an indicator of future housing construction, increased 8.7 percent to a 563,000 annualized rate. Building permits in the Northeast rose 5.4 percent; Midwest, 3.4 percent; South, 13.9 percent; and the West, 1.9 percent.

A green shoot? Possibly

Jonathan Basile, an economist for Credit Suisse Holdings in New York, said new home building doesn't qualify as a 'green shoot' yet, but it's getting close.

"There are some good signs," Basile told Bloomberg News Friday. "Home building is stabilizing at a low level."

Economists follow the housing start statistic because of the large role residential real estate has played historically in the U.S. economy. Housing affects commerce in companion sectors, such as furniture, appliances, insurance, and landscaping, among others. Hence, a sustained increase in housing starts usually puts upward pressure on U.S. GDP.

However, economists caution that investors should not put too much emphasis on the housing start statistic, as it relates to new home sales, while the bulk of the housing market -- and hence a more-indicative statistic -- is existing home sales, which will be reported later in the month.

Further, some U.S. Federal Reserve officials saw a danger of a "double-dip" decline in the housing market, partly due to an increase in mortgage rates. In their most recent Fed minutes, Fed members also cited the continuing "high rate" of foreclosures as a factor that could lead to rising inventories in the months ahead, putting more downward pressure on prices.

Housing Analysis: The June housing starts data suggests that the housing sector is laying the groundwork for a recovery. However, as noted, there are qualifiers. The building trend is up, but it's only been up for a few months: builders could quickly cut back in the face of a rise in existing homes put on the market, due to a rise in foreclosures. And with another wave of adjustable rate mortgages scheduled to reset in the two quarters ahead, that is a distinct possibility. Hence, investors should view the housing market this way: it has a pulse, but the patient remains hospitalized, in weak condition, and will need intensive care to recover.
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