Housing Production Remains Stalled

Single family housing production remains in the summer doldrums as potential home buyers remain uncertain about the economy and builders reflect that lack of clarity.  July housing starts rose less than 2% from a downwardly adjusted June figure of 537,000 to 546,000.  The increase was all in the more volatile multifamily component while single family starts fell 4.2% to 432,000, a level not seen since May 2009.  This is the third monthly decline in single family starts following the expiration of the home buyer tax credit in April.  The decline was predicted by the NAHB/Wells Fargo Housing Market Index released on Monday that fell for the third month to 13 from a high of 22 in May. 

Permits to build homes fell 3.1% with virtually no change in single family (-1.2%) and a larger but still statistically insignificant 8% decline in multifamily permits.  Multifamily production does appear to be near its bottom at just over 100,000 starts (on a seasonally-adjusted annual basis).

Builders remain hesitant to start new single family homes and add to their inventory of unsold homes as consumers remain on the sidelines.  The underlying housing conditions continue to improve with historically low mortgage rates, a bottom with some small increases in house prices, a leveling in new mortgage delinquencies and years of pent up demand waiting to move forward.  But without more solid job prospects, even for those employed, committing to a large purchase such as a home remains on hold for many.

A lull in building is also evident in the number of homes completed, which fell by 33% in July- the largest monthly decline on records that go back to 1968.  Builders are not installing the relatively expensive finishing touches in their homes under construction until they are more assured that a buyer is ready to take possession.

The housing turnaround is dependent on an economic recovery, which is the reverse of most post-recession recoveries.  In the past, housing’s rebound has been a key ingredient in overall economic recovery as the increase in purchases and employment of materials and labor used in construction spread through every community in the country.  The current cycle will put the horse before the cart and require overall economic growth to pull housing out of these doldrums.



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