Construction on new homes slowed slightly in July to an annual rate of 746,000, down 1.1% from the revised June rate of 754,000, which was a seven-year high. The decline was concentrated in the single-family sector where starts fell 6.5% to an annual rate of 502,000, again down from an elevated rate of 537,000 in June, which was the highest since the end of the home buyer tax credit in 2010. All regions saw a decline in single-family starts with the largest decline (27%) in the smallest region (Northeast) and the smallest decline (2%) in the largest region (South). Multifamily starts continued their ascent to a 244,000 annual pace.
While the starts figures reveal builders continued caution against establishing too much inventory, building permits increased 6.8% and both segments were positive. Single-family permits rose 4.5% and multifamily were up 11.2% to an annual rate of 299,000, the highest in four years and approaching the long-term normal level of 325,000 per year. Single-family permits were up or unchanged in every region and total permits were up in every region except for a 4.2% drop in the Midwest.
The decline in single-family starts is more likely an adjustment to a very healthy June rate than it is a sign that the budding housing revival is in trouble. The NAHB/Wells Fargo Housing Market Index continues a steady rise from a low of 14 in September 2011 to 37 in August 2012. Quarterly new home sales have been increasing since September 2011. A very slight rise in the month’s supply of new homes in June, continued difficult in obtaining production credit and extreme weather are likely the primary causes for the momentary pause in single-family starts. NAHB expects the annual rate of housing starts in the third quarter to be 765,000 or about a 15% increase over the third quarter of 2011.