IE 11 is not supported. For an optimal experience visit our site on another browser.

Housing starts slip from already-low levels

Builders broke ground on fewer single-family houses in July, leaving home construction at depressed levels, a government report shows.
/ Source: staff and news service reports

Single-family home construction slowed in July from already-depressed levels as the housing sector showed few signs of coming back to life.

Housing starts fell 1.5 percent to a seasonally adjusted annual rate of 604,000 units, the Commerce Department said Tuesday in a report that was in line with estimates. The figure is about half what economists say is needed to sustain a healthy housing market and less then one-third of peak levels from the height of the housing boom in 2005-06.

There was little sign of near-term growth as applications for new building permits also fell 3.2 percent in the month.

"There is still no sign yet of a pickup in housing," said Patrick Newport, economist for IHS Global Insight. The weak employment market is delaying a revival in demand for housing he said in substantially downgrading the firm's forecast for housing activity this year.

"Pent-up demand for housing is building as young adults stay at home, and at some point will spark a major revival in housing activity," he said in a note. "But it is becoming harder to see that soon."

The report was in line with expectations of analysts, who saw a glimmer of hope in the multifamily segment as more Americans are renting rather than buying homes, spurring demand for new apartments.

Apartment building rose more than 6 percent. Single-family homes, which represent 70 percent of home construction, fell 5 percent.

Though new homes represent just 20 percent of the overall housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

Cash-strapped builders are struggling to compete with deeply discounted foreclosures and short sales. A short sale is when a lender allows the owner to sell for less than what is owed on the mortgage.

Even though foreclosures are slowing as lenders deal with paperwork issues and shift their strategy, nearly one-third of all sales of existing homes represent distressed properties, including foreclosures.

"Single-family starts are still very much dead in the water and will likely not show any meaningful increase until the amount of distressed transactions moderates and the oversupply of existing homes is cleared," said Mark Vitner, senior economist for Wells Fargo Securities. "With foreclosures and short sales still accounting for a large share of total transactions, home prices will remain under pressure, which gives builders little incentive to ramp up building activity."

New-home sales fell in June to a seasonally adjusted pace of 312,000 homes per year. That's less than half the 700,000 per year that economists consider to be healthy.

One reason for the slow pace is that previously occupied homes are a better deal than new homes. The median price of a new home is more than 30 percent higher than the median price for a re-sale. That's more than twice the markup in healthy housing market.

The weak housing industry is also holding back the U.S. economy. In past modern-day recessions, housing accounted for 15 percent to 20 percent of overall economic growth. This time around, between 2009 and 2010, housing contributed just 4 percent to the economy.

U.S. homebuilders are just as pessimistic about the depressed housing market as they were two years ago.

The National Association of Home Builders said Monday that its survey of industry sentiment was unchanged at 15 this month. The index has been below 20 for all but one month during the past two years. The index is just seven points above the lowest reading on record, in January 2009.

Any reading below 50 indicates negative sentiment about the housing market. The index hasn't reached 50 since April 2006, the peak of the housing boom.