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US housing starts, building permits down sharply in May

H.S. Borji
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US housing starts and building permits fell faster than forecast in May, a sign the housing recovery will take time to materialize after a strong 2013.

Groundbreaking for new homes fell 6.5 percent to a seasonally adjusted annual pace of 1.001 million, the Commerce Department reported today in Washington. Economists forecast housing starts to fall to a 1.05 million pace.

Compared to May 2013, housing starts were up 9.4 percent.

Starts for single-family homes, which represent the largest component of the market, declined 5.9 percent a seasonally adjusted annual pace of 625,000. Groundbreaking for multi-family homes declined 7.6 percent to 376,000, official data showed.

Building permits – a gauge of residential building intentions – fell 6.4 percent to a seasonally adjusted annual pace of 991,000, down from the 1.06 million unit pace in April. Economists forecast permits to fall to 1.055 million.

Year-on-year, building permits were down 1.9 percent, official data showed.

Today’s figures reinforce the view the housing recovery will remain subdued for some time, as consumers weigh affordability challenges and homebuilders move cautiously in adding inventory.

A survey on Monday courtesy of the National Association of Home Builders showed builder confidence increased slightly in June, but remained below what is generally considered good building conditions. The NAHB’s Housing Market Index advanced four points to 49. The confidence gauge has yet to recover from February’s weather-related ten-point plunge.

In a testimony to the Joint Economic Committee last month Federal Reserve Chair Janet Yellen said the central bank was puzzled by the housing slowdown.

Housing activity has “remained disappointing so far this year,” Yellen said last month in her testimony.

April figures suggested the housing recovery was regaining momentum at the start of the second quarter, as groundbreaking, building permits and home sales all increased.

The housing recovery has been under pressure since last summer, around the time when mortgage rates began rising. According to the National Association of Realtors, mortgage rates are expected to rise over the next year, placing more pressure on the jobs recovery to stimulate growth in this segment of the economy.

The Fed could address the housing recovery Wednesday in its rate statement. The central bank is expected to further scale back the pace of quantitative easing and keep interest rates at record lows.

The NAR on Monday will report on previously-owned home sales for the month of May. The Commerce Department will report on new home sales next Tuesday.

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