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June Housing Starts Down 9.3%

construction-twoNew homebuilding activity declined sharply in June, with both single- and multifamily construction taking a major hit.

According to a joint report from HUD and the Census Bureau, groundbreaking on new homes was at a seasonally adjusted annual rate of 893,000, a drop of 9.3 percent below May's revised annual rate of 985,000.

Declines came on both sides of the market: Single-family starts came to a rate of 575,000, down 9.0 percent, according to the report, while multifamily starts fell 9.9 percent to a 318,000 rate.

Economists at global analytics firm IHS Global Insight called Thursday's report a poor one, at least on its face.

"After a lengthy winning streak, the multifamily sector seems to be undergoing a small correction," said Patrick Newport and Stephanie Karol at IHS. "Meanwhile, single-family starts fell back below the 600,000 mark. Plus, revisions to the past three months' worth of data brought total starts down by a combined 21,000."

Starts actually ticked up in three of the four census regions, rising 14.1 percent in the Northeast to a rate of 105,000; 28.1 percent in the Midwest to 219,000; and 2.6 percent in the West to 194,000.

The South, meanwhile, posted a significant 29.6 percent drop in homebuilding to a rate of 375,000.

With home prices continuing to advance and low-wage earners still struggling to get their own place in the recovery, the region's prospects for future construction growth look doubtful.

"Until now, a large share of new construction in the South has been made up of lower-priced homes, but the market may be bumping up against affordability constraints," IHS said. "Until the mix of job gains shifts towards higher-paying sectors and wage inflation takes hold for those at the lower end of the scale, affordability may be a tricky prospect for many families."

On the other hand, the table might be set for increased activity in the other regions. The National Association of Home Builders' index of builder confidence crossed back up into a mostly positive view in July, signaling a potential pickup.

The permits picture was mixed. In June, the government estimates authorizations for new homebuilding were at a rate of 963,000, down 4.2 percent from May.

All of that decline came on the multifamily side, where permits fell nearly 15 percent.

In the single-family segment, permits came to 631,000, an increase of 2.6 percent above May, though that growth was limited to only one region: the Midwest.

"Upon closer inspection, it looks like the single-family market in the Midwest may be approaching escape velocity: permits rose to 110,000 in June, the highest level seen since January 2008. This is a promising sign," IHS said.

Meanwhile, permit issuance was down 15.5 percent in the Northeast to 98,000; 6.3 percent in the South to 463,000; and 1.8 percent in the West to 224,000.

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