July Housing Starts Come in Below Estimates

The latest data are mixed, showing that apartment construction offset declines in single-family homes.

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Housing starts were at an annual rate of 896,000 in July, according to new data from the Census Bureau. That's up from June's 846,000 and comes in slightly below consensus estimates, according to Bloomberg. Though this is an increase of 5.9 percent, it is well within the government's 14.5 percent margin of error, meaning that there may actually have been no change in the figure since June.

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Likewise, permits rose slightly, growing by 2.7 percent to 943,000, coming in slightly above consensus estimates, according to Bloomberg.

"The homebuilding recovery is continuing, although at a somewhat uneven pace," said Gus Faucher, senior economist at PNC Financial Services, in a commentary on the numbers. He points to the fact that apartment buildings drove growth in housing starts last month. In fact, starts on single-family homes fell by 2.2 percent from June, to an annual rate of 591,000. However, that also was within the margin of error.

Small sample sizes make for wide margins of error on the Census numbers, meaning that it can be hard to make sense of month-to-month fluctuations. However, the figures also reflect a housing market that is improving strongly over the longer term. Housing starts for July were up 20.9 percent over their July 2012 level, and building permits were up 12.4 percent over the same period.

The housing market has gained a lot of ground over time, but it's not clear how long such strong growth can continue.

"There is constant demand, but there are headwinds for increasing demand," says Keith Gumbinger, vice president at mortgage information site HSH.com. "Unless we see stronger economic growth, unless we see stronger job growth, it's going to be hard for housing starts to move significantly higher in the near term."

He also adds that even if job growth picks up soon, housing growth will likely lag behind, as people save up for new homes after getting their new jobs.

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Though the latest housing numbers are mixed, says Faucher, he expects demand for houses to pick up in coming months for a number of reasons.

"There is significant pent-up demand for new homes," says Faucher. "[I]nventories are tight; affordability is high, even with higher mortgage rates over the past few months; an improving labor market is boosting confidence; and higher stock prices are also a positive for new home sales and homebuilding."

Mortgage rates have indeed risen significantly and there is reason to think they will continue to climb. Stimulus measures from the Federal Reserve have helped to keep rates low in recent years, but many economists expect the Fed to taper its $85 billion per month asset buys known as QE3 as soon as September. That could drive mortgage rates upward. The anticipation of that taper has already pushed interest rates upward. According to Freddie Mac, the rate on the average 30-year fixed-rate mortgage was at around 3.4 percent as of May. Today, it's a full percentage point higher, at 4.4 percent.

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