Single family housing starts fell back to year-ago levels but multifamily starts and permits were up 33% and 10% respectively.  While multifamily data is notoriously erratic, the simultaneous movement does suggest that underlying economic factors are beginning to take the place of the temporary tax incentives.

The fall in single family starts (17%) was expected as demand shifted into earlier months to qualify for the home buyer tax credit.  There was a warning of this effect in April when single family permits fell 10% and another louder warning sign when the June NAHB Housing Market Index fell 5 points to 17.  Single family permits also fell a more modest 10% to year-ago level of 438,000.  The decline in starts and permits was broad based with a few exceptions.  Single family starts fell in all four census regions but a very small 2% decline in the West, which is likely the result of a renewed state tax credit in California.  Single family permits fell in three regions but were up 4% in the Northeast.

The more modest drop in single family permits and a draw down in permit inventories portends another soft starts month in June.  However, underlying economic conditions continue to forecast an improved housing market.  Mortgage interest rates remain very low by historic standards, home prices appear to have bottomed in most markets and job reports are turning positive.  Roughly 1.5 million unformed households have accumulated over the four years of housing declines and these people are waiting to move out of roommate or parental home situations.  Those delayed households form the pent up demand that has been waiting for the right moment to move forward.  The economic and demographic forces will be the new stimulus moving the housing market forward in the last half of 2010.