Housing starts hit 9-month low as construction slump deepens

The construction sector, which is currently going through a challenging phase, has been the main drag on the economy since it started recovering under the present administration. Being a significant employment creator and active contributor to overall growth, the slowdown in the sector can be detrimental for the economy.

Dampening the growth prospects, housing starts in the US dropped a seasonally adjusted 12.3% month-on-month in June, marking the fastest decline in more than one-and-half years. At 1.173 million, the number of housing starts registered last month was the lowest in nine months, with all four regions witnessing negative growth.

The worst performers were homebuilders in Midwest, where building starts fell 35.8%. South recorded a 9.1% fall in activity.

Reflecting the underlying weakness, housing permits dropped for the third consecutive month. Permits were issued for a total of 1.273 million units during the month, the lowest since September 2017 and down 2.2% compared to May.

The lower-than-expected numbers, published by the Commerce Department Wednesday, came at a time when the sector is reeling under severe property shortage amidst non-availability of land and labor crunch. At the same time, home-buyers are discouraged by the increase in prices and interest rates, disproportionate to income growth.

The worst performance was recorded in Midwest, where building starts fell 35.8% 

Construction of single-family residential properties, which accounts for the lion’s share of the housing sector, remained muted in June. Continuing the downtrend started in November last year when it hit a ten-year high, single-family home-building plunged 9% to 858,000 units. Meanwhile, the rate of decline in multi-family housing starts was nearly 20%.

On the positive side, permits for single-family homes edged up nearly 1% to 850,000 units in June, giving hopes that the segment might recover in the coming months.

While the softness in activity has raised concerns about the future of the sector, experts are of the view that a clear trend would emerge only when statistics for the current month are out.

Earlier this week, a closely-watched economic survey revealed that in July, homebuilders remained worried about the rising costs of raw materials, with the primary contributor to the bleak sentiment being the tariff-induced cost escalation of softwood lumber imported from Canada.