By Jeffry Bartash, MarketWatch
The numbers: Construction of new houses fell slightly in June and permits sank to the lowest level in two years, suggesting a sluggish U.S. housing market has failed to gain much momentum from lower mortgage rates.
Housing starts slipped 0.9% to an annual pace of 1.25 million last month. That’s how many homes would be built in 2019 if construction took place at same rate over the entire year as it did in June.
Economists polled by MarketWatch had expected housing starts to drop to a seasonally adjusted 1.24 million rate from a revised 1.27 million in the prior month.
Permits to build more homes, meanwhile, sank 6.1% to a 1.22 million pace, the government said Wednesday . That’s the lowest level since mid-2017.
Permits are also about 7% lower compared to the same month a year earlier.
What happened: Housing starts rose in the U.S. Northeast and Midwest, the two regions in which construction is slowest. Construction on new homes fell in the South and West, the two fastest growing parts of the country.
Single-family houses accounted for about 68% of the new starts (847,000 rate) in June. They rose 3.5%.
Work on multifamily projects of five units or more slipped last month after soaring in May to a one-and-a-half year high. But they are still 25% higher compared to a year ago, reflecting strong demand for rental units.
The decline in permits, however, signals that builders are unlikely to ramp up construction much even though interest rates have fallen steeply since late last year.
Permits in the South fell to the lowest level in two and a half years. And permits for multi-unit projects such as apartment buildings and condo complexes slid to a three-year low, though it’s a volatile segment prone to sharp monthly swings.
Big picture: Residential construction represents about 4% of the economy. While it doesn’t play as big a role as it once did, it’s still an important component of growth.
Lately housing hasn’t been a big contributor, even with a rising population of young families and the best jobs market in decades. Builders are having a hard time securing inexpensive lots and finding enough skilled workers, among other things. High prices are another obstacle.
What they are saying: “Any way you slice it, there is not much going on,” said Stephen Stanley of Amherst Pierpont Securities.
“Restrictive and costly regulations, rising construction costs and an ongoing labor shortage in the construction industry continue to put pressure on builders,” said Odeta Kushi, deputy chief economist at First American, a financial services company that specializes in real estate.
Market reaction: The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.04% and S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.24% fell slightly in Wednesday trades, coming off record highs.
Shares of construction companies such as LGI Homes /zigman2/quotes/202461766/composite LGIH +2.77% , D.R. Horton /zigman2/quotes/202032328/composite DHI +2.00% and Meritage Homes /zigman2/quotes/209069331/composite MTH +2.85% also declined.
The 10-year Treasury yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00% dipped to 2.09%.