Housing Starts, Permits Both Drop in July

Housing starts in July fell from June figures but still came in well ahead of predictions.  According to information released by the U.S. Census Bureau and the Department of Housing and Urban Development on Tuesday, July housing starts were at a seasonally adjusted annual rate of 604,000, a drop of 1.5 percent from the revised June estimate of 613,000.  The June numbers were also revised downward from the original estimate of 629,000 starts.  Reuters had predicted that starts would drop to 600,000 while IFR Markets was expecting 590,000 starts. 

Multi-family starts offset what was a larger drop in the single family market. The latter decreased 4.9 percent to 425,000 from the revised June figure of 447,000 while construction was begun in buildings with five or more units at the rate of 170,000, up from 160,000 in June. 

Housing permits fell from the June estimates and failed to meet economist predictions, decreasing from an annual rate of 617,000 in June to 597,000 in July.  This was a -3.2 change, but still an improvement of 3.8 percent from the 575,000 permit rate in July 2010.  Economists from Reuters had predicted that permits in July would be at a rate of 605,000 and 600,000 respectively.  Single family permits increased from 402,000 to 404,000 month over month while multi-family permits fell from 194,000 to 171,000, a drop of 11.9 percent.

The backlog of permits, that is permits that have been issued but construction not yet started, diminished from June to July.  The inventory of unused permits dropped from 85.1 thousand to 80.9 thousand, a decrease of 4.9 percent. 

There were 413,000 housing units under construction at the end of July, down 3,000 from June.  A total of 243,000 of these units were single family homes.

In a commentary on the expected housing numbers, Reuters Economists said, Housing starts and building permits will likely consolidate their gains from recent months, with readings of 590k and 600k, respectively, for July. That would be down from the 629k and 617k seen in June, but still a bit stronger than recent trends in both series. The underlying trend in multi-unit structures remains strong though will likely come down a bit after surging in both series. Starts should see a small retreat in single-unit structures after June's 39k jump to 453k.

"The pace of new home sales remains much too low to support significant increases in single-unit construction. The inventory of new homes was down almost a quarter in June from a year earlier, however, which provides a glimmer of hope. While the much larger supply of existing homes seems stagnant and drives the overall housing market, new and existing homes aren't completely perfect substitutes, so dwindling new home inventory is a slightly positive sign."