Housing starts in June were at a seasonally adjusted annual rate of 1.173 million, a decrease of 12.3% compared with a revised 1.337 million in May and down 4.2% compared with 1.225 million in June 2017, according to estimates from the U.S. Census Bureau and U.S. Department of Housing and Urban Development.
It was the lowest level since September 2017 and far below economists’ projections.
Regionally, housing starts fell 40% in the Northeast, 35.8% in the Midwest, 9.1% in the South and 3% in the West.
Starts of single-family homes were at a rate of 858,000, a decrease of 9.1% compared with a revised 944,000 in May.
Starts of multifamily homes (five units or more per building) were at a rate of about 304,000, down 20.2% compared with about 381,000 units in May.
Rising lumber prices in connection with tariffs recently imposed by the Trump Administration may be partly to blame for the drop-off in housing starts.
“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,” says Randy Noel, chairman of the National Association of Home Builders (NAHB), in a statement. “This is why we continue to urge senior officials to take leadership and resolve this issue.”
Building permits were at a seasonally adjusted annual rate of 1.273 million, a decrease of 2.2% compared with a revised 1.301 million in May and down 3.0% compared with 1.312 million in June 2017.
Permits for single-family homes were at a rate of about 850,000, an increase of 0.8% compared with about 843,000 in May.
Permits for multifamily properties were at a rate of 387,000, down 8.7% from 424,000 in May.
Michael Neal, senior economist for NAHB, says “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,” Neal says. “However, consumer demand for single-family housing continues to increase as the overall economy and labor market strengthen.”
Economists polled by Reuters had forecast housing starts to fall to around 1.320 million and permits to rise to 1.330 million.
Housing completions were at a rate of 1.261 million, flat compared with May but up 2.2% compared with June 2017.
Despite the impact of rising lumber costs on production, Mark Fleming, chief economist for First American, points to the increase in construction labor and the pace of housing completions as indications that supply relief is on the way.
“While housing starts decreased on an annual basis, completions are up, indicating some immediate relief in alleviating the supply shortage,” Fleming says.
“The pace of housing completions … is particularly important as it measures new supply that can immediately help offset current housing shortages,” he adds. “The continued year-over-year growth in completions means more homes on the market in the short-term.”
And an increase of nearly 4,000 residential construction jobs between May and June, he says, “supports further improvement in the pace of home building and signals that housing construction is likely going to increase in the months ahead.”
“As builders start work on additional housing, we will inch closer to balancing inventory with demand,” Fleming adds. “But, with millennials entering household formation age and baby boomers living longer and more independently than previous generations, builders will remain under pressure to keep up with the growing demand.”