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US housing starts hit 9-month low in June, permits drop
US homebuilding fell to a nine-month low in June and permits for future construction declined for a third straight month, dealing a blow to the housing market as it struggles with a dearth of properties available for sale.
The bigger-than-expected decrease in housing starts and surprise drop in permits, reported by the Commerce Department, suggested homebuilding could be plateauing against the backdrop of more expensive lumber, and land and labour shortages.
"We are seeing pressure on both sides of the market, from increasingly expensive inputs on the supply side to prices that are charging ahead of wage growth on the demand side, and the result is that neither builders nor buyers can keep up," said John Pataky, the executive vice-president of TIAA Bank in Jacksonville, Florida.
Housing starts tumbled 12.3 per cent to a seasonally adjusted annual rate of 1.173 million units last month, the lowest level since September 2017, the Commerce Department said.
The drop was the largest since November 2016 and both single and multi-family home construction declined in June.
Data for May was revised down to show starts rising at a 1.337 million-unit rate instead of the previously reported 1.35 million-unit rate. Starts fell in all four regions last month.
Building permits dropped 2.2 per cent to a rate of 1.273 million units, also the lowest level since September 2017.
Economists polled by Reuters had forecast housing starts falling to a pace of 1.32 million units last month and permits rising to a rate of 1.33 million units.
The PHLX housing index was trading lower, underperforming a broadly firmer US stock market. The dollar rose against a basket of currencies, while prices for US Treasuries were mostly flat.
Single-family homebuilding, which accounts for the largest share of the housing market, decreased 9.1 per cent to a rate of 858,000 units in June.
Single-family homebuilding has lost momentum since hitting a pace of 948,000 units last November, which was the strongest in more than 10 years.
A survey on Tuesday showed confidence among single-family homebuilders unchanged in July, with builders continuing to be "burdened by rising construction material costs".
The Trump administration in April 2017 imposed anti-subsidy duties on imports of Canadian softwood lumber, which builders say have boosted the price of a new single-family home, further reducing affordability for many first-time buyers.
Mortgage rates have also risen, though they are still low by historic standards. At the same time, wage growth has been moderate.
Residential investment contracted in the first quarter. June's sharp drop in homebuilding suggested housing was probably a drag on growth in the second quarter.
The housing market is lagging overall economic growth, which appears to have accelerated in the second quarter after hitting a soft patch at the start of the year.
Growth estimates for the April-June period are as high as a 5.3 per cent annualised rate, more than double the 2 per cent pace in the first quarter.
"The June report builds on what has been a soft run for many of the housing indicators through much of the year to date, and it signals that residential investment will likely continue to look weak in the coming months," said Daniel Silver, an economist at JPMorgan in New York.
While permits to build single-family homes rose 0.8 per cent in June to a pace of 850,000 units, they continued to trail starts.
This suggests limited scope for a pick-up in single-family homebuilding in the months ahead.
Starts for the volatile multi-family housing segment plunged 19.8 per cent to a rate of 315,000 units in June. Groundbreaking on buildings with five units or more fell to a 10-month low.
Permits for the construction of multi-family homes dropped 7.6 per cent to a pace of 423,000 units.
In another sign supply will remain tight, housing completions were unchanged at a rate of 1.261 million units in June, with single-family units falling 2.3 per cent.
Realtors estimate that housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to plug the inventory gap.
The stock of housing under construction slipped 0.5 per cent to 1.121 million units. Single-family homes under construction last month dipped 0.2 per cent to 515,000 units. REUTERS