Economics
Housing starts soar in June - but not time to cheer yet!
Latest available: June 2008
Release date: July 17, 2008
June housing starts came in much stronger than expected, rising 9.1% to an annualized 1.066 million units. Expectations had been for a modest 1.5% decline to an annualized 960,000 units. However, the Commerce Department, which compiles the data, indicated that much of the unexpected strength reflected a change in the New York City building code that came into effect July 1. This prompted builders to try to get housing units started before the new standards went into effect. As a result, much of the unexpected strength in June is simply advancing activity from subsequent months.
The regional breakdown clearly illustrates the impact of the change in the New York City building code, with starts in the northeast soaring 102.6% in the month to an annualized 237,000. This is in stark contrast to much weaker numbers in other regions with declines of 10.5% in the mid-west and 8.2% in the west. Starts in the south were relatively steady, rising a minimal 0.4%.
With housing units in New York City largely skewed towards multi-family units, this contributed to this component of national starts jumping 42.5% to an annualized 419,000 units. The historically more stable single-family component declined a sizeable 5.3% to an annualized 647,000 units. June building permits were also very strong rising 11.6% to an annualized 1.091 million units, although with the strength attributable to this same transitory factor.
The strength in June housing starts is not indicative of any fundamental turnaround in the housing market. With inventories remaining at historically high levels, builders will need to continue to keep new construction at low levels. The bump-up in starts in June will likely contribute to some easing in the pace of decline in residential investment in the second quarter from the 24.6% drop recorded in the first, although it will not prevent the pace of decline from remaining firmly in double-digit territory.
This continuing weakness in housing, along with high energy prices and deteriorating financial markets, will keep the Fed wary about near-term growth prospects, resulting in Fed funds holding steady despite indications of rising price pressures.
New home sales resume downtrend
Latest available: May 2008
Release date: June 25, 2008
New homes sales resumed a declining trend in May, with activity dropping 2.5% to an annualized 512,000 after the unexpected 4.8% increase in April. Last month's rise was, in fact, revised up from an initially reported gain of 3.3%. The level of new homes sales in May was in line with market expectations.
Weakness was evident in the west (-11.6%) and the northeast (-7.9%). Some offset was provided by the mid-west where activity rose 5.1%, the second month in a row of rising sales. Activity in the south was generally flat with sales increasing a minimal 0.4%.
The number of unsold homes fell modestly to 453,000 in May from 461,000 in April. However, as measured in terms of sales days, inventories moved higher to 10.9 sales days from 10.7 in April in the face of the drop in sales activity. The weakness in the housing market is also conveyed by declining house prices, which are down 5.7% on a year-over-year basis in May. Housing prices on this basis have declined in five of the last six months.
Today's report does little to dispel the pessimism about the U.S. housing market and the likelihood that it will continue to be a major drag on growth in the near-term. The Fed will continue to be wary about this declining activity in residential investment being overlaid by weakness elsewhere in the economy. Falling employment and plummeting consumer confidence suggest clear downside risks to consumer spending, although the tax rebate cheques have provided an important near-term offset.
Record year-over-year drop in Case-Shiller house price index
Latest available: April 2008
Release date: June 24, 2008
The Case-Shiller 20-city house price index declined 1.4% in April and was 15.3% lower than a year earlier. The decline was modestly less than expected by forecasters, although it still marked the largest year-over-year drop on record.
