Beginning home construction unexpectedly declined in June to a nine-month low as a record plunge in the South swamped gains in the rest of the U.S.
Housing starts fell 9.3% to an 893,000 annualized rate from a 985,000 pace in May that was weaker than initially estimated, figures from the Commerce Department showed today in Washington. The median estimate of 79 economists surveyed by Bloomberg called for a 1.02 million rate.
Construction slumped 29.6% in the South to a 375,000 pace, the weakest in almost two years. The figures, along with a decline in building permits, corroborate Federal Reserve Chair Janet Yellen’s view that progress in the housing market has been "disappointing" this year.
"The big takeaway is two straight months of weakness; housing starts are one of the leading indicators, and something that was anticipated to be a big recovery in the spring just has turned out not to be," Jay Morelock, an economist at FTN Financial in New York whose starts estimate was among the lowest in the Bloomberg survey. "Going forward we see more or less a stabilization. I don't think it’s going to crash and I don’t think it’s going to accelerate."
Another report showed the number of Americans filing applications for unemployment benefits unexpectedly dropped last week. Jobless claims declined by 3,000 to 302,000 in the week ended July 12, the Labor Department said today in Washington. The median forecast of 51 economists surveyed by Bloomberg projected 310,000. The number of people continuing to receive jobless benefits fell to a seven-year low.
Stocks fell as European markets slumped on sanctions against Russia and investors weighed corporate earnings amid the drop in starts. The Standard & Poor's 500 Index dropped 0.2 percent to 1,977.8 at 9:46 a.m. in New York.
Estimates for housing starts in the Bloomberg survey ranged from 957,000 to 1.1 million after a previously reported 1 million in May. Building permits decreased 4.2% in June to a 963,000 annualized rate, after falling in May. They were projected to rise to 1.04 million.
Three of four regions had an increase in total housing starts in June, led by a 28.1% jump in the Midwest to a 219,000 annualized rate, the strongest since August 2007. Construction rose 14.1% in the Northeast and 2.6% in the West. The Commerce Department's records go back to 1959.
Construction of single-family houses declined 9 percent to a 575,000 rate, the weakest since November 2012, the report showed. The drop was influenced by a 20.1% plunge in the South, the biggest decrease since May 2010.
Work on multifamily homes, such as apartment buildings, fell 9.9% to a 318,000 rate. The figures on multi-unit construction can be volatile month to month.
Residential real estate has been slow to emerge from an early-year, winter-driven slump, a development not lost on Yellen.
While housing has recovered from its lows, "activity leveled off in the wake of last year's increase in mortgage rates, and readings this year have, overall, continued to be disappointing," Yellen said this week during her semi-annual testimony to the Senate Banking Committee.
Residential investment shrank 4.2 percentage points at an annual rate in the first quarter, when bad winter weather stalled projects. The final three months of 2013 were worse as home construction declined an annualized 7.9 percentage points. The back-to-back declines were the first since the end of the last recession.
The average rate for a 30-year fixed mortgage was 4.15% in the week ended July 10, according to Freddie Mac. While down from 4.53% at the start of the year, it's higher than the 3.35% in May 2013.
Prices have increased as well, hurting affordability for those getting into the market. The median selling price of a new home sold in May increased 6.9% the same month last year to reach $282,000, today's report showed.
At the same time, payroll gains are brightening the outlook for the market. A report yesterday showed confidence among homebuilders rose in July to the highest level in six months. The National Association of Home Builders/Wells Fargo sentiment measure climbed to 53 from 49 in June, the Washington-based group reported. Readings above 50 mean more respondents said conditions were "good."
Measures of buyer traffic, current sales and future prospects all picked up in July.
Lennar Corp. is among those benefiting from higher property values. The Miami-based company reported a quarterly profit that beat analysts’ estimates as homebuilder raised its prices and delivered more properties.
"The fundamental drivers of improvement in the housing market remain a steadily improving economy with a slowly improving employment picture unlocking pent-up demand while supplies remain constrained to meet that demand," Chief Executive Officer Stuart Miller said on a June 26 conference call. A shortfall in single- and multifamily homes is "likely to continue to define the housing markets for the foreseeable future and will drive the housing recovery forward."
Fed policy makers are keeping an eye on the housing market as they wind down their unprecedented bond-buying program. Rates are likely to stay low for a "considerable period" after bond purchases end, which could happen after the Fed's October meeting, Yellen said in remarks this week to the Senate.