The Commerce Department says housing starts dropped 5.0% to a seasonally adjusted annual rate of 549,000 units, the lowest level since October. It was the second straight month of decline in activity and was well below market expectations for a 580,000-unit rate. May's housing starts were previously reported as a 10.0% drop, but are now revised down to show a 14.9% decline. Compared to June last year, starts were down 5.8%, the biggest decline since November. Driving the June decline was a more than 20% drop in the volatile condominium and apartment market. Construction of single-family homes, the biggest part of the market, was down slightly by 0.7%. The only positive sign in the report was an unexpected 2.1% rise in applications for building permits to a 586,000-unit pace in June.
That followed a 5.9% drop in May and compared to analysts' expectations for a slip to 570,000 units. Still, the slumping job market and competition from foreclosed properties have forced builders to limit construction, especially after tax credits that spurred sales expired at the end of April. "Despite record low mortgage rates, housing is at risk of a double dip unless job growth strengthens soon," said Sal Guatieri, senior economist at BMO Capital Markets. Economists had had predicted that construction would fall to a rate of 580,000 and had projected that building permits would sink to a rate of 570,000, according to Thomson Reuters. In a typical economic recovery, the construction sector provides much of the fuel. But not this time. While developers have cut back on construction and the number of new homes on the market has fallen dramatically, they still must compete against foreclosed homes selling at deep discounts.
