Real Estate Remains Shaky With July's Weak Housing Starts Rise

The bad news in the nation's housing sector continued in July. The month's housing starts actually inched higher to a 546,000 annual rate -- but it was an increase on June's figure only because of a large downward revision, to 537,000, in the previous month's housing start total.

A Bloomberg survey had expected July housing starts to rise higher to a 565,000 annual rate, from a revised 537,000 in June, which is down from the previously released 549,000 total. A year ago, in July 2009, starts totaled a 587,000 annual rate.

Equally significant, single-family home starts fell 4.2% in July to a 432,000 annual rate -- its lowest level since May 2009.

Starts Down Despite Home Buyer Assistance

What's more, housing starts are now down 7% on a year-over-year basis -- this after two phases of the home buyer tax-credit program. Starts are also down about 75% from the 2006 peak registered during the housing boom.

In July, housing starts fell in two of four regions. They rose 6.2% in the Northeast, climbed 8.8% in the Midwest, fell 5.8% in the South and plummeted 14.7% in the West.

Further, building permits -- considered a leading indicator of residential construction -- also fell 3.1% in July to 565,000, including a 1.2% reduction in single-family home building permits to 416,000.

Economists follow the housing starts 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 GDP.

July's disappointing housing starts report will likely intensify concern that the housing sector is not generating enough organic demand to power the sector's recovery. Decreased home purchases due to the 2007-to-2009 recession, combined with a rise in foreclosures, have led to a large inventory of unsold new and existing homes and discouraged builders from constructing new residences.