U.S. housing starts tumble 12% in June

U.S. homebuilders sharply curtailed the pace of construction in June as housing starts plummeted 12.3%.

The Commerce Department said Wednesday that housing starts fell to a seasonally adjusted annual rate of 1.17 million from 1.34 million in May. June’s pace of construction was the lowest since September 2017.

Housing starts plunged 35.8% in the Midwest and declined less severely in the Northeast, South and West.

Permits, an indicator of upcoming construction, also declined 2.2% in June from the previous month.

The decrease in housing starts was driven by a fall in both single-family and multi-family building, notes CIBC economist Katherine Judge in an emailed note to clients.

“The decline brings the pace of starts to the slowest seen since September, and the weakness was broad-based across regions,” writes Judge.

Yet, despite the pullback in permits, “still healthy levels suggest that building should accelerate going forward, helped by still solid demand amidst rising interest rates,” she adds.

Further, the drop-off in housing starts might only reflect the volatile nature of the government’s monthly construction report, rather than the beginning of a downward trend.

For the first half of 2018, a steady job market and a shortage of existing homes for sale has bolstered housing starts. New home construction has climbed 7.8% year-to-date.

Homebuilders are also relatively confident that the expansion will continue. The National Association of Home Builders/Wells Fargo builder sentiment index declined slightly to a reading of 68 in June. Any reading above 50 signals growth.

That confidence, along with robust price growth, “should continue to incentivize homebuilding going forward,” says Judge.

Read: Expect rising home prices in second half of 2018: Royal LePage

Still, builders also see reasons for concern. They face cost pressures from a lack of available land and construction workers, as well as from higher commodity prices from the tariffs announced by President Donald Trump.

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