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Washington, D.C. — Total housing starts fell 12.3 percent in June to a seasonally adjusted annual rate of 1.17 million units, according to newly released data from the U.S. Department of Housing and Urban Development and the Commerce Department. The June reading of 1.17 million is the number of housing units builders would begin if they kept this pace for the next 12 months. Within this overall number, single-family starts fell 9.1 percent to 858,000 units. Meanwhile, the multifamily sector — which includes apartment buildings and condos — dropped 19.8 percent to 315,000.

Overall, permits — which are a sign of likely future housing production — dropped 2.2 percent to 1.27 million units in June, the lowest level of the year. Although single-family permits edged up 0.8 percent to 850,000, they remain at their second lowest reading of 2018. Multifamily permits fell 7.6 percent to 423,000.

“We have been warning the administration for months that the ongoing increases in lumber prices stemming from both the tariffs and profiteering this year are having a strong impact on builders’ ability to meet growing consumer demand,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La. “This is why we continue to urge senior officials to take leadership and resolve this issue.”

While overall production is 7.8 percent higher than its level over the same period last year, the June report raises concerns about a softening in housing production over the near term.

“The concern over material costs, especially lumber, is making it more difficult to build homes at competitive price points, particularly for newcomers entering the housing market. Moreover, the soft permit report does not suggest a significant increase in housing production in the near term,” said NAHB Senior Economist Michael Neal. “However, consumer demand for single-family housing continues to increase as the overall economy and labor market strengthen.”

Combined single- and multifamily housing starts fell in all regions of the country. Starts fell 3 percent in the West, 9.1 percent in the South, 35.8 percent in the Midwest and 40 percent in the Northeast.

Looking at regional permit data, permits rose 6.2 percent in the South. Permits fell 1.8 percent in the West, 16.4 percent in the Northeast and 18.7 percent in the Midwest.

“The results for June are both surprising and disappointing,” said Scott Volling, Principal, PwC. “While it is not uncommon to see a bit of a drop-off in starts and permits at the end of summer before rebounding again in the fall, the June results are a bit perplexing. Given the recent 4 to 5 month stretch of relative strength in starts and permits, and without an anomaly such as extreme atypical weather to blame, the results are clearly counter to recent trends. With yesterday’s builder sentiment still at lofty levels, despite being flat month to month, the sharp drop in starts and permits may indicate that labor constraints may be impacting builders’ ability to rapidly complete homes more than we thought.

“As mentioned last month, challenges with labor costs and material costs, particularly in a rising rate environment, are typically more than enough to slow starts and permits,” Volling said. “However, the severe shortage of homes for sale has buoyed the builders through strong demand for new homes. Based on today’s numbers, the strong builder sentiment may be more a reflection of builders’ confidence in their ability to quickly sell what they build, but not necessarily confidence in their ability to build at a velocity and price point that the market may dictate.

Builder confidence

Builder confidence in the market for newly built single-family homes remained unchanged at a solid 68 reading in July on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

“Consumer demand for single-family homes is holding strong this summer, buoyed by steady job growth, income gains and low unemployment in many parts of the country,” said NAHB Chairman Noel.

“Builders are encouraged by growing housing demand, but they continue to be burdened by rising construction material costs,” said NAHB Chief Economist Robert Dietz. “Builders need to manage these cost increases as they strive to provide competitively priced homes, especially as more first-time home buyers enter the housing market.”

Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair,” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average,” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

The HMI index measuring current sales conditions remained unchanged at 74. Meanwhile, the component gauging expectations in the next six months dropped two points to 73 and the metric charting buyer traffic rose two points to 52.

Looking at the three-month moving averages for regional HMI scores, the Northeast rose one point to 57 while the Midwest remained unchanged at 65. The West and South each fell one point to 75 and 70, respectively.

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