The June report on housing starts and building permits released by the Commerce Department on Thursday was the perfect illustration of today’s real estate market: disappointing and even grim at first blush – but with several signs of real hope in the details.
Housing starts fell 9.3 percent last month to an annual rate of 893,000, according to the report. The bulk of the weakness was concentrated in the South, where starts fell 29.6 percent to a 375,000 rate.
In the rest of the country housing starts were actually robust.
“The entirety of the drop in single-family starts came from the South; starts ticked up in all other regions of the country,” IHS Global Insights U.S. economists Patrick Newport and Stephanie Karol wrote in a research report. “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.”
The recovery in the housing market has faltered, as Federal Reserve Chair Janet Yellen noted this week in her comments to Congress.
“While this sector has recovered notably from its earlier trough, housing activity leveled off in the wake of last year’s increase in mortgage rates, and readings this year have, overall, continued to be disappointing,” Yellen said in prepared remarks.
The lackluster reports have included a decline in mortgage applications. The volume decreased 3.6 percent for the week ended July 11, with applications for new mortgages, as opposed to applications for refinancing, falling 8 percent to their lowest level since February, according to the Mortgage Bankers Association.
A few other factors have limited the supply of housing on the market and tamped down demand, hampering the recovery. The so-called shadow inventory of homes with seriously delinquent mortgages or in foreclosure has dwindled, with the remaining inventory concentrated in states with longer foreclosure processes, according to Mark Fleming, chief economist with CoreLogic. Other homeowners may have little incentive to sell because they have mortgage rates lower than what’s currently available on the market, or because they have built up very little equity in their homes and might face challenges in buying a different property.
But there are enough factors in place to encourage confidence about a stronger housing recovery down the line:
- Single-family homebuilders’ expectations for sales for the remainder of the year hit a six-month high this month, according to a new survey released Wednesday.
- The number of foreclosures fell 16 percent in June from a year earlier and is at its lowest level since the summer 2006, on the eve of the subprime crisis, according to a RealtyTrac report released Wednesday.
- Mortgage rates continue to be attractive: The 30-year fixed mortgage rate has been hovering around 4 percent.
- And the job market is slowly improving, with initial claims for state unemployment benefits dropping by 3,000 in the week ended July 12, according to the Labor Department.
The big question is when these factors might translate to a stronger market.
Now if personal income, one of the necessary components to spur more spending, would rise at a healthier pace, more Americans might be able to enter the housing market.
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