Housing Starts and Building Permits for June 2007
	DATE	CURRENT		LAST	% Change	Download Starts and Permits
Starts	7/18/2007	1.467M		1.434 M	+ 2.3%
Permits	7/18/2007	1.406M		1.520 M	-7.5%

Read additional information and download data (Excel) for Housing Starts & Permits.

Related NAHB Press Releases:

•  Housing Starts Up Slightly in June but Permits Down Sharply (07/18)

•  Builder Confidence Falls Further in June (07/17)

Highlights

• The housing downswing has been underway for roughly two years and most indicators point toward further deterioration. A nationwide survey of more than 400 single-family builders, conducted by NAHB in June, sought to gauge market momentum at mid-year and to identify builders’ production plans for the second  half of 2007. The survey highlighted the adverse impacts of the subprime mortgage crisis on sales and cancellations and reinforced our judgment that housing starts will decline moderately in the second half of the year.

•  Growth of real GDP for the first quarter of the year now stands at an annual rate of 0.7%, according to the “final” estimate released by the Commerce Department on June 28. Residential fixed investment contracted at a 15.8% rate and subtracted 0.89 percentage point from GDP growth. Large negative contributions also came from net exports and business inventory investment. These drags held overall GDP growth to the slowest pace in more than four years and prompted a lot of speculation about near-term recession in the U.S. economy
 
• As we suspected, the first-quarter downshift in economic growth was a temporary phenomenon. Rebounds in net exports and business inventory investment, and a smaller drag from residential fixed investment, helped raise GDP growth to about 3% in the second quarter (that’s our current estimate), and we’re looking for near-trend growth performance over the balance of the 2007-2008 forecast horizon —with the probability of recession in the 20-25% range.
 
• The labor market performed quite well during the first half of the year despite the first-quarter downshift in GDP growth. Payroll job growth averaged 145,000 per month (with recent revisions), below the average pace in 2006 (189,000) but still quite respectable. The unemployment rate averaged 4.5% in the first half, presumably the low range for this cycle. NAHB’s forecast shows a modest increase in the unemployment rate over the balance of the 2007-2008 forecast horizon with average monthly job growth around 125,000.
 
• Persistently tight labor market conditions have been putting persistent upward pressures on average hourly earnings, and a slowdown in productivity growth has contributed to upward pressures on unit labor costs. Despite these pressures, and despite renewed upward pressures on energy prices, measures of core consumer price inflation have been remarkably well behaved in recent months. Indeed, the core PCE price index slipped to a year-over-year rate of 1.9% in May and the core CPI  showed an advance of 2.2% —readings that are within the Fed’s apparent “comfort zones” for these measures.
 
• As expected, the Federal Reserve held monetary policy steady at the June 28 FOMC meeting, maintaining the 5.25% federal funds rate target. The FOMC statement referred to “moderate” economic growth in the first half and noted that core inflation had been improving “modestly.”  However, the Fed did not declare victory over inflation, pointing out that the high level of resource utilization (i.e., the low unemployment rate) has the potential to sustain inflationary pressures. NAHB’s forecast assumes that the Fed will hold the nominal funds rate steady over the balance of the 2007-2008 forecast horizon, allowing the real funds rate to gravitate upward as core inflation recedes further.
 
• Long-term interest rates have been fluctuating a good bit in recent times, primarily in response to shifting market attitudes regarding U.S. economic growth, inflation and monetary policy management. Furthermore, rather persistent upward pressures have been coming from abroad, reflecting upward inflation pressures in some key foreign economies and central bank efforts to control those pressures. NAHB’s forecast assumes that long-term rates will remain close to current levels for some time —with the 10-year Treasury yield hanging around 5.1% and the prime fixed-rate home mortgage around 6.65%.
 
• Recent revisions to NAHB’s housing forecasts, including revamping of our outlook for residential remodeling, show a whopping 13.9% contraction in residential fixed investment for 2007 as a whole, although the annualized rates of contraction go from 15.8% in the first quarter to 4.3% in the fourth. We’re looking for positive quarter-to-quarter growth throughout 2008, but the year-to-year gain is less than 1%.

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A question frequently posed to economists at the NAHB is “What happens to housing affordability in my city when house prices rise?”  One way to answer this is to change the price of a representative home by a fixed amount and observe the impact on affordability. Based on national mortgage underwriting standards,  it is possible to estimate how many households that qualified for a mortgage before a house price increase no longer qualify for one afterwards. Those are the households that are “priced out” of the market for a home.         
 
Applying this approach to the U.S. as a whole (detailed results for all 357 metro areas are provided in the article) shows that in 2007 —using typical assumptions about the mortgage, down payment, property taxes and property insurance, a $1,000 increase in a median-priced new home, more than 217,000 households.
 
The size of the priced out effect is largely a function of the income distribution. The larger the number of households that have the income necessary to buy a given priced house before the price increase, the more households will be priced out after the price rise. Conversely, the more expensive the house, the fewer the households adversely affected by a price increase.

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Housing Market Statistics
Name	Current		Previous
Housing Starts (7/18)	1.467 M		1.434 M
Building Permits (7/18)	1.406 M		1.520 M
HMI  (7/17)	24		28
New Sales (6/26)	915 M		930 M
Existing Sales (6/25)	5.990 M		6.010 M
30-yr Fixed (7/12)	6.73 %	+	6.63%
1-yr ARM (7/12)	5.71 %	=	5.71%
Home Prices (6/26)	NEW-May
	236.1Th		230.7 Th
Home Prices (6/25)	Existing-May
	223.7Th		219.8 Th

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New home prices vary substantially from place to place but there is no national systematic measurement of new home prices. The research presented here provides an innovative and unique method for estimating newly-built home prices for state and metropolitan areas. This article uses recently released data from the Census Bureau’s American Community Survey (ACS), which is designed to replicate the long form decennial Census questionnaire on an annual basis.
 
At NAHB’s request, the Census Bureau has begun to tabulate the ACS question on house value by age of the structure. Because the ACS is one of few data sources that covers the U.S. in a comprehensive fashion down to a fine level of geography, this means it now provides information about the value of homes that have been built recently down to the level of individual states and metropolitan areas. The ACS data are a couple of years old when finally processed and released, and the margins of error are high in some of the smaller metropolitan areas, so NAHB uses data from other sources (permit value, values of homes that are slightly older in the ACS, NAHB’s housing forecast) to see if the ACS-derived estimates appear reasonable and bring them forward to 2007.
 
The results are estimated median prices of owner-occupied homes built in 2007 that range from $135,000 in Mississippi to $544,000 in Hawaii; and from $86,000 in Charleston West Virginia to $849,000 in San Jose-Sunnyvale-Santa Clara California.

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Stuart Tyrie

Vice-President, National Builder Division

Wells Fargo

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Mark your calendar for all of  the housing industry key data and primary indicators for July-August 2007.

Print here the schedule of release dates for economic indicators. (PDF)

2007 release date calendar (Excel)

Building Permits and Employment data by State and Metropolitan Statistical Area (MSA), are available for download (Excel tables).

Also available for HousingEconomics.com subscribers:

• Annual Population by Metro Areas (1980-2005)   

• Annual Building Permit Numbers for Metropolitan Statistical Areas (1981-2006)   - Recently Updated!

• Annual Employment Numbers for Metropolitan Statistical Areas (1990-2005) 

Look ahead with the Home Builders Forecasts by region and type such as:

• State and Metro Forecasts — Includes Starts Forecast, Excel tables of Total, Single-Family, and Multifamily Housing Starts by Regions, States, and the Top 100 Metropolitan areas (Free Previews).

• Executive-Level Forecast — Monthly forecast of economic activity, inflation, interest rates, and housing activity; the Executive-level forecasts contain an executive summary, in-depth detail, and historical data with annual and quarterly forecasts for all indicators (Sample).

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