US housing starts and permits for future home construction unexpectedly fell in June, but the decline in activity was likely to be short-lived against the backdrop of bullish sentiment among home builders. The Commerce Department said on Wednesday housing starts dropped 9.9 percent to a seasonally adjusted annual rate of 836,000 units. That was the lowest level since August last year.
Economists, who had expected groundbreaking to rise to a 959,000-unit rate, shrugged off the decline and said wet weather in many parts of the country had dampened activity. They noted that much of the drop was in the volatile multifamily segment. "It looks like it's weather-related," said Sam Bullard, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. "On the surface it doesn't look good, but we are confident that starts activity is still going to climb higher in the months to come." Permits to build homes fell 7.5 percent last month to a 911,000-unit pace. Economist had expected permits to rise to a 1-million unit pace.
Though it was the second straight month of declines in permits, they remained ahead of starts. Economists said this, together with upbeat homebuilder confidence, suggested groundbreaking activity will bounce back in July and through the remainder of this year. Sentiment among single-family home builders hit a 7-1/2 year high in July, a report showed on Monday, amid optimism over current and future home sales. There was little to suggest that a recent spike in mortgage rates was restraining home building activity, economists said, pointing to the improving builder confidence. Housing's recovery is being aided by still-low mortgage rates engineered by the Federal Reserve's accommodative monetary policy and steady employment gains.
Mortgage rates increased in recent weeks after the Fed expressed its desire to start cutting back on its bond purchases later this year. The monthly $85 billion in bond purchases have been holding down interest rates. Last month, groundbreaking for single-family homes, the largest segment of the market, slipped 0.8 percent to its lowest level since last November 2012. Starts for multi-family homes declined 26.2 percent to a 245,000-unit rate.
Starts were down in all four regions in June, with big declines in the Northeast, South and the Midwest. Weak groundbreaking suggested a smaller boost to both second and third quarter gross domestic product from residential construction. Second-quarter GDP estimates are ranging between 0.5 percent and 1 percent. The economy grew at a 1.8 percent annual pace in the first three months of the year. Permits for multi-family homes fell 21.4 percent last month. But permits for single-family homes rose 0.6 percent to a their highest since May 2008.