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Housing Starts in June Cool Down From Torrid Levels

The torrid production levels of earlier this year, which were in the 2 million-unit range, were not sustainable, according to NAHB President Bobby Rayburn, “but something on the order of 1.8 million or 1.9 million is.” He added that builders remained confident about prospects for the balance of this year. “The market fundamentals remain healthy, with strong consumer demand, lean inventories and a favorable interest rate structure,” Rayburn said.

NAHB Chief Economist David Seiders said that the slowdown in June came largely in reaction to a shift in the Federal Reserve’s monetary policies. “With rampant speculation in financial markets that the Federal Reserve was about to launch an aggressive process of monetary tightening at the end of June, builders apparently became somewhat cautious, trimming both housing starts and permit issuance during the month," he said.

Since then, however, the markets have been mollified by reassurances from the Fed that it intends to boost interest rates at a measured pace, and mortgage rates subsided a bit, he said. “This certainly bodes well for housing in the coming months.”

Single-family housing starts fell 9.5% in June to a pace of 1.489 million. This was a 1.1% drop from the pace of a year earlier, but for the first half of this year single-family production was up by 12.2%.

“While the June figure is a bit of a surprise, it is still quite strong by historical standards,” said Seiders. “In fact, we expect single-family starts to post an all-time high in 2004, surpassing last year’s record 1.499 million units.”

The pace of multifamily housing starts decreased 3.7% from May to a seasonally adjusted annual rate of 313,000 units. This was down 9.3% from a year earlier, but the sector was up by about 6% so far this year.

New home construction was down in all four regions of the country: 16.5% in the West, 11.5% in the Midwest, 3.5% in the Northeast and 3.1% in the South.

The backlog of unused building permits rose substantially in June, particularly in the single-family sector, as builders reassessed the financial market climate, Seiders noted. “This development should be a positive factor for housing starts in July.”

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