More of the Same, U.S. Homebuilding Stuck in a Rut

U.S. housing starts declined 1.5% in July to 604K units from a downwardly revised 613K units in June. Today’s report just surpassed market expectations for a 600K reading.

Single-family housing starts declined 4.9%, while the volatile multifamily sector rose 7.8%.

In a negative omen of future building activity, permits inched 3.2% lower.

Regionally, starts jumped 34.7% in the Northeast and 5.6% in the South, while declining 37.7% in the Midwest and 3.0% in the West.

Key Implications

Today’s report is nothing new and simply reiterates that housing construction is stuck in a rut. Traditionally, the U.S. economy has built nearly 1.5 million new homes per year; this day the economy is producing just 41% of that.

The key to stronger housing construction lays in clearing the existing stock of foreclosed homes. To date, foreclosure policy initiatives have not been very effective, as shown by the high level of re-defaults among mortgage modifications. At the current rate of liquidation, we estimate it will take 4-5 years to clear the market.

One bright spot, however, is multifamily construction (up 48% compared with a year ago), which continues to outperform single-family construction (down 1% compared with a year ago). We anticipate this trend will continue for at least another two or three years as impaired mortgage credit keeps a lid on homeownership and encourages renting.

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Submited at Tuesday, August 16th, 2011 at 8:00 pm on Uncategorized by Gillan
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