(This story has been posted on The Wall Street Journal Online's
Developments Blog at http://blogs.wsj.com/developments.)
By Robbie Whelan
Construction of new homes slowed slightly in July, while builders
ramped up work on apartments, according to numbers released Thursday
by the Commerce Department, an indication that the rental housing
market remains strong.
In July, builders were on pace to start construction on 746,000 homes,
about 1.1% slower than June's revised figure of 754,000. The pace of
construction is still 21.5% higher than it was one year ago, when
builders were on track to build just 614,000 homes. Both figures, like
most Census statistics, come with a wide margin of error and could be
revised in the next month.
The starts results were weaker than forecast. Economists surveyed by
Dow Jones Newswires expected July housing starts to fall to a
seasonally adjusted annual rate of 756,000, a 0.5% decrease from
June's figures.
The numbers come on the heels of news that home-builder confidence is
rising. The National Association of Home Builders' confidence index
rose two points in August to 37 out of 100, indicating that more
builders feel assured that the market is stabilizing.
The slight slowdown in building activity mostly comes from the
single-family home building sector. Starts on single-family homes fell
6.5% from June. For most of 2012, single-family starts have been
hovering around a pace of 500,000 a year, with a slight bump in May
and June, in the midst of the spring selling season. Single-family
starts also typically rise in the late spring and early summer as
families sign contracts for newly built homes in order to have them
built in time for the new school year.
Multifamily starts grew both on a monthly and a yearly basis as
apartment landlords respond to increasing demand from renters. Part of
this has to do with turmoil in the for-sale housing market: With
mortgage credit tight, prices stagnant in many markets, and
foreclosures still a looming problem, many are finding it easier to
rent than to buy.
Still, new housing is undoubtedly improving in 2012 from the depths of
the last few years, and market watchers point to building permit
numbers as a sign that the coming months will show continued good
news. Permits rose 6.8% overall last month, compared with June, and
29.5% compared with July 2011.
Permits, of course, don't mean that the housing units authorized will
actually be built, but July's number is the highest level of permits
since August 2008.
Here's what analysts and economists were saying about Thursday's numbers:
Michael Rehaut, builder analyst, J.P. Morgan Chase: "While
single-family starts, which are more related to the ownership market
and the home builders, fell 6.5%, single-family permits rose 4.5%;
hence we expect August total and single-family starts to demonstrate a
solid rebound from this month. As a result, we maintain our belief
that housing demand continues to improve at a moderate pace, while
additionally, we believe our home building universe should continue to
gain share, particularly over the next 2-3 years, given their stronger
capital positions and the more limited financing available to smaller
private builders."
Michael Vitner and Anika R. Khan, senior economists, Wells Fargo
Securities: "The drop was entirely in single-family units, which fell
6.5 percent in July, following four consecutive monthly increases.
This pullback seems to be a little suspicious and it is plausible we
could see some of this decline revised away...The multifamily sector
remains a bright spot for new construction and continues to benefit
from favorable demographics. Traditional renters in the
20-to-29-year-age range are continuing to drive apartment demand.
Moreover, many previous homeowners who lost their home due to either
foreclosure or short sale have also turned to the apartment market.
With supply constrained, there is somewhat of an apartment builder
frenzy. Many of these projects won't hit the market for about one to
two years during which time apartment vacancy rates should continue to
fall further."
Paul Diggle, property economist, Capital Economics: "The likelihood is
that housing starts will rise strongly next month. All in all, despite
the slight fall, this latest set of results does little to dissuade us
that the underlying trend in housing starts is upwards. Indeed, based
on the strength of the leading indicators, the recovery in home
building could soon accelerate."
Follow Robbie @RWhelanWSJ
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(END) Dow Jones Newswires
August 16, 2012 14:35 ET (18:35 GMT)
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