Housing starts unchanged in July

New home construction in the U.S. took a slight breather last month: housing starts were unchanged in July, as a small increase in single-family home construction offset declines in other housing types.

Housing starts fell 1 percent to a revised 581,000 annual unit rate in July, down slightly from a revised 587,000 unit rate in June, the U.S. Commerce Department announced Tuesday.

Economists surveyed by Bloomberg News had expected housing starts to total a 605,000 annualized rate in July. Housing starts totaled a 562,000 rate in May, and 458,000 in April.

Single-family permit uptrend continues

One positive in the July data: building permits for single-family homes rose 5.8 percent in July, to an annual rate of 458,000. It's the fourth straight monthly increase for the metric, which suggests building activity in single-family homes has bottomed. What's more, single-family permits are up 27 percent since their low recorded in March. Meanwhile, total permits fell 1.8 percent in July.

In July, single family home starts rose 1.7 percent, while multi-family starts fell 13 percent. Further, single-family starts have increased 36 percent since March.

Still, investors should keep in mind that any increases in housing sector activity stem from a very low point with depressed construction levels, following the nation's worst housing recession in more than a generation. Further, total housing starts are still down 38 percent in the past 12 months, and are down 70 percent since the housing boom's peak.

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 also caution that monthly housing start data contains a margin of error and revisions can be large. In addition, housing analysts underscore that it can take three to five months for a housing trend to form, and retrenchments are possible. When can investors and potential homebuyers and sellers be confident that an upward housing trend does not represent a false reading? When housing starts, sales, and prices rise in unison with monthly job gains for the U.S. economy for several months.

Housing Analysis: What to make of July's essential flat housing start statistic? Combine it with Monday's U.S. home builder sentiment that indicated that homebuilders are slightly more optimistic and one can make the case that housing starts have bottomed. However, there are qualifiers. The building trend is inching higher, 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 quarters ahead, that is a distinct possibility. Hence, investors should view the housing market this way: it has a pulse, and is out of intensive care, but the patient remains hospitalized, in weak condition.
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