Instant View: June housing starts fall more than expected

NEW YORK (BestGrowthStock) – U.S. housing starts fell more than expected in June to their lowest level in eight months, a government report showed on Tuesday, supplying further evidence the economy was losing momentum during the second quarter.

However, a 2.1 percent rise in building permits helped temper the negative impact of the headline reading.

KEY POINTS: * The Commerce Department said housing starts dropped 5.0 percent to a seasonally adjusted annual rate of 549,000 units, the lowest level since October. * It was the second straight month of decline in groundbreaking activity and was well below market expectations for a 580,000-unit rate. * May’s housing starts were revised down to show a 14.9 percent decline, which was previously reported as a 10.0 percent drop. * Compared to June last year, starts were down 5.8 percent, the biggest decline since November. * There was an unexpected 2.1 percent rise in applications for building permits to a 586,000-unit pace in June. * That followed a 5.9 percent drop in May and compared to analysts’ expectations for a slip to 570,000 units.

COMMENTS:

YELENA SHULYATYEVA, ECONOMIST, BNP PARIBAS, NEW YORK:

“We were expecting a decline but clearly it was a bigger decline in the overall number of housing starts.

“It is clear that much of the stabilization in the housing demand over the past year was driven by demand through low rates and the tax credit, which expired, and the outlook for housing remains very uncertain.

“We expect residential investment to contribute negatively in the third quarter based on the weakness in housing starts.

“As for the next month the starts could rebound slightly because the decline today was largely driven by multi-family and it’s a very volatile component. However, single families declined only slightly by 0.7 percent and that was pretty much in line with what we were expecting.”

ALAN LANCZ, PRESIDENT, ALAN B. LANCZ & ASSOCIATES INC., TOLEDO, OHIO:

“There’s really nothing that’s gonna move the needle as far as housing starts, they’re close to the consensus, not really disappointing.

“It’s gonna be a difficult environment, the type of global deleveraging we’re going through now is basically implying a tepid recovery at best.

“The main catalyst will continue to be what it’s been the past few days, the earnings and guidance into the third quarter. The top line and the guidance, even with IBM and Johnson & Johnson, really hasn’t been as bullish as what we’ve seen in previous quarters.

“We’ll need more than one company to provide positive results, if say Apple has an upside surprise and the next day subsequent companies don’t, the talk will be that Apple’s in a sweet spot and is an aberration.”

HUGH JOHNSON, CHIEF INVESTMENT OFFICER, HUGH JOHNSON ADVISORS LLC, ALBANY, NEW YORK:

“It’s not a good number. It indicates fairly clearly that the housing sector has lost momentum, that concerns about a double dip in housing are well founded. It’s not surprising that housing starts declined given the significant inventory of unsold homes, and until that inventory of unsold homes comes down, we’re not likely to see improvement in starts.

“The encouraging number is the permits, which showed a slight increase.”

DAVID WYSS, CHIEF ECONOMIST, STANDARD & POOR’S RATINGS SERVICES, NEW YORK:

“They were certainly disappointing, and the only good news is that permits are up. Both were influenced by multifamily activity. The main point is that the end of the home credit is the end of new home sales. They pulled a lot sales to March and April.

“The drop is really across the board. It was across all regions. The new home sales next week will be just as bad.

“The affordability remains very good and unemployment is coming down. People are very nervous about taking on debt and banks are nervous in lending out the debt.

“The question is that is this a temporary lull or it’s just people turned off in housing and they are not interested anymore?”

TOM PORCELLI, U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:

“It’s really not as bad as the headline would suggest. Single-family starts held up rather well. Single family matters more from a GDP perspective. It’s more value-added. Overall this is not as bad as the headline would suggest.

“Housing prices are going to remain under significant pressures this year.

“If you look at what Treasuries did immediately after the number, they’ve actually bounced back slightly since then. Once the dust settles people recognize that this really isn’t as bad as the headline.”

GARY SHILLING, PRESIDENT, A. GARY SHILLING & CO, SPRINGFIELD, NEW JERSEY:

“Its weak again, showing what a depressed market housing is, with so much supply and so little demand. What we’re seeing, of course, is the aftermath of the tax credits for housing. We saw the same kind of drop after the first round ended last November, before they reinstated the credit.”

JAMES COX, MANAGING PARTNER, HARRIS FINANCIAL GROUP, IN COLONIAL HEIGHTS, VIRGINIA:

“Both the revision and the current numbers of housing starts were well below expectations. A glimmer of good news was that permits went up, so the future is brighter than the present.

“I don’t think it changes the Fed’s outlook at all. I don’t think they concern themselves with housing as much as they do the output gap. Housing lends credence to their decision to stand pat.”

MARKET REACTION: STOCKS: U.S. stock index futures trim losses after housing data. BONDS: U.S. Treasury debt prices hold gains. DOLLAR: U.S. dollar holds gains versus euro, yen.

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Instant View: June housing starts fall more than expected